Ten-year tax incentives granted to special technology zones
The government has granted a comprehensive duty and tax incentives for a period of 10 years to investors operating in the proposed special technology zones (STZs), sources in the Federal Board of Revenue (FBR) said on Monday.
The incentives also include immunity from explaining the source of funds to be invested. Besides, exemptions are also available from declaring income and assets for 10 years. The sources said the incentives have been granted through a presidential order to promulgate Special Technology Zone Authority Ordinance 2020 on December 2.
The purpose of the ordinance is to provide institutional and legislative support for the technology sector to increase productivity and decrease cost of production through high-tech interventions, according to the sources.
The FBR sources, however, said the ordinance is inconsistent with prevailing tax laws. Tax incentives were granted without making amendments into the relevant laws of duty and taxes. They said exemptions from duty and taxes have to be incorporated in the prevailing tax laws to make exemptions lawful. Further, the exemptions mean that tax authorities are not empowered to ask for a source of fund invested for 10 years. Meanwhile, the investors of STZs will also not be required to file declarations of income and assets. Tax experts told The News that the ordinance is a special law and it would override other common laws.
“The ordinance related to STZs is a special law and it will override other common laws,” said Ikramul Haq, senior tax consultant and advocate of the Supreme Court. “The parliament has power to issue special laws.”
Haq said the law will not override other special laws, which are in vogue. “Anti-money laundering laws, Anti-Benami laws and laws related to proceeds of crimes / terror financing are special laws and will remain applicable for investment made in STZs,” he said. “Under the new ordinance investors or authority would be questioned under prevailing special laws.”
The sources said the incentives through the ordinance are sort of an amnesty which would create problems in the upcoming meeting of the Financial Task Force (FATF) scheduled for February. The global financial system watchdog asked Pakistan to meet conditions related to anti-money laundering/combating the financing of terrorism laws to come out of its grey list.
Haq is sure that the government may not face any problem from the FATF. The sources said the FBR approached ministry of law for the comments regarding the order bypassing the tax laws.
The FBR sources said in the past such exemptions had been granted in case of special economic zones, establishment of green field industries and even in case of amnesty schemes through incorporating amendments to relevant tax laws.
Section 21 and 22 of Special Technology Zone Authority Ordinance 2020 granted incentives for zone developers and zone enterprises. Under Section 22 of the ordinance, exemption from all income taxes (withholding tax, presumptive tax) for a period of 10 years from the date of issuance of licence by the authority was granted. Exemption was also announced from all customs duties and taxes for a period of ten years from the date of issuance of licence by the authority on capital goods including but not limited to materials, plant, machinery, hardware, equipment and software imported into Pakistan for consumption within zones by the authority and zone enterprises. Exemption from property tax for 10 years from the date of issuance of licence by the authority was also granted.
Exemption was also announced from general sales tax on goods and services on import of plant, machinery, equipment and raw-materials for consumption of these items within zones by the authority as well as zone enterprises, and tax exemption on dividend income and long-term capital gains from investment in a venture capital undertaking for 10 years from the date of issuance of licence by the authority.