Taxation issues under consideration regarding China Pakistan Economic Corridor (CPEC)

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China Stance

FBR Pakistan Stance

The Chinese authorities want the

insurance premiums paid to Sinosure to
be exempted from the income tax.
Establishment of facilitation desk at FBR
for China-Pakistan Economic Corridor
(CPEC) projects
Withholding tax exemption on imports
from Port Qasim Project.

There is no exemption of income tax on insurance premium paid to non-resident companies

and tax is chargeable at a very low rate of 5 percent.

The input tax adjustment in the case of

Engro Thar Coal.
Obstacles being faced by the companies
due to IRIS software.
Requirement to get certificate from
Engineering Development Board (EDB)
for project capacity above 25 MW

Exemption of taxation on dividend

income under the ECC package

Procedure for Green, Yellow and Red

Channels for clearance of imported
consignments
Exemption from sales tax on vehicles
imported for site use on the same lines
as for customs duty
Income tax on interest payments to the
Industrial and Commercial Bank of
China

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On the request of Ministry of Water and Power a focal person has been appointed with two
secretaries, one each from IRS and Customs who will co-ordinate with concerned sections
in FBR and field formations regarding any issue related to the CPEC
Withholding tax exemption on imports from Port Qasim project was delayed due to
jurisdiction dispute. The same has been resolved and exemption will be issued on
submission of required documents
Input tax adjustment in the case of locally produced coal is not permissible under the
existing law.
FBR Member (IT) may be contacted
FBR requires certificate from Engineering Development Board (EDB) for project capacity
above 25 MW. As per EDB, it is not appropriate forum to issue project capacity certificate,
companies were asked to put up proposal in writing regarding change of certification
agency.
There is no exemption of taxation on dividend income of share holders from coal mining
and coal based power generation projects in Sindh
As per the decision of the ECC there is exemption of withholding of tax from dividend
income for maintaining cash liquidity.
The Green, Yellow and Red channels for clearance of imported consignments are fully
automated and computer picks up the cases on the basis of risks involved
The exemption from sales tax on vehicles imported for site use on the same lines as for
customs duty not allowed.
Energy Project Co-operation Agreement provides IBC and other Chinese commercial
banks with exemption for interest previously reserved exclusively for state banks as
provided in the Second Protocol. But this treatment is limited to interest arising from loans
related to the Economic Corridor Projects/Energy Project
(The agreement is under negotiation)

The government has withdrawn powers of the Federal Board of Revenue (FBR) to grant concessions and exemptions of
duties/taxes through Statutory Regulatory Orders (SROs) through a Presidential Taxes Amendment Ordinance and the Economic
Coordination Committee of the Cabinet is now the competent authority to grant any exemption or tax concession.

As far as matters requiring change in existing laws are concerned, a proposal needs to be sent to the FBR for consideration and
necessary action to initiate change in policy as well as law through Finance Bill or the ECC meeting, whichever is feasible

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China Stance
Income Tax

Sales Tax & Excise Duty

Customs Duty

Exemptions provided by ECC on 23 May 2016 for Gawadar

ECC approved a complete income tax holiday for 23 years to businesses that will be
established in the Gwadar Free Zone. A Statutory Regulatory Order to that effect will be
issued, and the changes will come into force the day the order is issued.
ECC has also exempted the China Overseas Ports Holding Company Limited (COPHCL) and
its operating companies from paying the minimum 1% income tax. Moreover, the ECC
approved complete exemption from the 12.5% tax on dividend income and withholding tax
for the COPHCL, and its operating companies, including the China Overseas Ports Holding
Company Pakistan Private Limited, Gwadar International Terminals Limited, Gwadar
Marines Services Limited and Gwadar Free Zone Company Limited.
Pakistan has also granted tax exemption on profit on debt generated by those Chinese
financial institutions that will lend money for construction and development purposes.
ECC also exempted the COPHCL, its operating companies and contractors from sales tax
and federal excise duty. A 23-year exemption from sales tax and federal excise duty has
also been granted to businesses that will be established inside the Gwadar Free Zone.
However, if these businesses make supplies and sales outside the free zone, they will be
subject to taxation
Pakistan approved customs duty exemption for the COPHCL, its operating companies,
contractors and subcontractors for a period of 40 years on import of equipment, materials,
plants, machinery, appliances and accessories for construction of Gwadar Port and the
associated Free Zone.
The exemption has also been extended on import of ship bunker oils for supplying fuels
and lubricants to ships used in the port and its terminals. A 23-year duties exemption has
been granted on port related businesses to be established in the free zone. The COPHCL
can also import vehicles free of any duty