This blog is written by Mr. Ikram Ul Haq, Supervisor Taxation and Corporate Services. Please read this informative blog which is compiled on the basis of research. Please provide your valued comments.
Hattar Special Economic Zone and its attractiveness for new business
Hattar Economic Zone approved as Special Economic Zone by Federal Board of Investment. This is the first Special Economic Zone of Khyber Pakhtunkhwa. The SEZ Act was promulgated on September 13, 2012. The fiscal benefits under the SEZ law include a one-time exemption from custom duties and taxes for all capital goods imported into Pakistan for the development, operations and maintenance of a SEZ (both for the developer as well as for the zone enterprise) and exemption from all taxes on income for a period of ten years. Khyber Pakhtunkhwa Economic Zones Development & Management Company is developing and managing Hattar Economic Zone. This is a huge milestone towards industrialization of the province.
Special Economic Zone (SEZ) Act 2012:
Benefits for developer:
Unless otherwise provided in the development agreement, developer shall be entitled for the following benefits; (Clause 36)
- One time exemption from all custom-duties and taxes on plant and machinery imported into Pakistan except the items listed under Chapter 87 of the Pakistan Customs Tariff, for the setting up of an SEZ subject to verification by the BOI; and
- Exemption from all taxes on income accruable in relation to the development and operation of the SEZ for a period of five years, starting from the date of signing of the development agreement.
Benefits for zone enterprises:
All zone enterprises shall be entitled to the following benefits;
- One time exemption from custom-duties and taxes on import of plant and machinery into SEZ except items listed under Chapter 87 of the Pakistan Customs Tariff, for installation in that zone enterprise subject to verification by the BOI; and
- Exemption from all taxes on income for enterprises commencing commercial production by the thirtieth June, 2020, in the SEZs for the next ten years;
“Provided that exemption from all taxes on income for those zone enterprises or firms which commence commercial production after the aforesaid date shall be for the next five years”.
SEZ Rules 2013:
Incentives for existing zones: (Clause 48)
- Existing zones that are approved as SEZs shall also be granted incentives.
- The Enterprises already in operation prior to the zone’s approval as a SEZ shall not be eligible for incentives as per Section 15 of the Act.
- New Zone Enterprises entering the SEZ shall be entitled to all SEZ incentives as provided in the Act. Zone Enterprises acquiring the premises from existing operations may be eligible for SEZ incentives as a new Zone Enterprise provided it meets at least one of the following criteria:
- The nature of the operations on the site will be changed to produce different goods, use different processes, or conduct different activities; or
- The new Zone Enterprise is not associated with the old enterprise.
Why it is attractive to new businesses;
- Strategic location, along the CPEC route. Opens windows to export Afghanistan, China and Central Asia;
- No duties on import of machinery;
- Tax Holiday – Tax free period (income tax) for ten year;
- High quality infrastructure and uninterrupted supply of utilities;
- Cheaper rates of land for businesses, payment on installments are accepted by the FZ authority;
- Therefore, required less capital at initial stage of business and also reduced level of working capital would be required to insert during the operations (due to reduced taxes and less stringent compliances for businesses in FZ).
BOI website; Special Economic Zone (SEZ) Act 2012; SEZ Rules 2013; and Published in The Express Tribune, June 12th, 2016.
Ikram Ul Haq