Free Economic Zones in Pakistan

SPECIAL ECONOMIC ZONES

Special Economic Zone (SEZ) is a blanket term for various types of specialized zones with specific types of enterprises operating in a well-defined geographic area where certain economic activities are promoted by a set of policy measures that are not generally applicable to the rest of the country. Successful SEZs offer immediate access to high-quality infrastructure, uninterruptible power supply, clearly titled land, public facilities, and support services .In addition, streamlined regulatory enforcement, simpler business and establishment rules, expedited customs administration, and other special administrative and approval procedures are also offered in such zones.

Special Economic Zone Framework in Pakistan

The SEZ Act was promulgated on September 13, 2012 and later this year the SEZ Rules were notified. The law provides SEZs to be set up by the Federal or Provincial Governments themselves or in collaboration with the private sector under different modes of public-private partnership or exclusively through the private sector.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. The provincial SEZ authorities, set up under the law, are required to move the applications received from developers to the Federal Board of Investment which is to act as the secretariat to the Board of Approvals and the Approval committee.The Board of Approvals (BOA), the highest approving forum is headed by the Prime Minister with membership from Economic Ministries, Provincial Governments, Public and Private Sectors. Approvals Committee is headed by the Chairman BOI and membership from Economic Ministries, Provincial Governments, Public and Private Sectors and SEZ Authorities (at provincial level including Gilgit- Baltistan) work under the leadership of the Chief Ministers.The first application of Khairpur Special Economic Zone was in principle approved by the Approval Committee of Special Economic Zones in its first meeting held on February 11, 2014. Khairpur Special Economic Zone is being developed in Khairpur District as a future hub of agro-processing and other related industries, KSEZ is located on 140 acres land in the proximity of date growing areas, ideal for setting up date processing and packaging plant for exporting different varieties of date to get high price for this value added product in the international markets. This special zone will have state-of-the-art infrastructure, efficient design, easy access to labor and training facilities and quality logistic services. The zone will provide inherent benefits of essential supporting amenities to small, medium, and large enterprises to grow and flourish in a global market place.The Provincial Governments have received many applications for various potential zones in their respective provinces and are in the process of preparing documents to further process the applications. They are also engaged with potential local and foreign investors to finalize arrangements for infrastructure development of the areas identified for Zones.

FREQUENTLY ASKED QUESTIONS ON SPECIAL ECONOMIC ZONES (SEZs)

Q:What is a Special Economic Zone (SEZ)?

A:Economic Zone (SEZ) is a blanket term for various types of industrial/export processing/trading zones with specific types of enterprises operating in a well-defined geographic area where certain economic activities are promoted by a set of policy measures

that are not generally applicable to the rest of the country. Under section 3(n) of the SEZ Act, 2012; “Special Economic Zone” or “(SEZ)” means a geographically defined and delimited area which has been approved and notified by the Board of Approval (BOA)”.

Q:What makes SEZ different from other economic zones?

A:SEZs Act provide a comprehensive legal framework to regulate the SEZs; unlike the past when just a set of incentive were provided. That’s the reason most of our IEs provided with lucrative incentives failed. A strong mechanism exists where all the concerned agencies like SEZ developers, Government agencies are accountable for the provision of facilities guaranteed under the SEZ Act. A world class infrastructure to be provided to enterprises by the developers in return to set of concessions/incentive provided to them; and a set of very lucrative incentives; which cannot be withdrawn prematurely. In past most of the incentives were granted through Statutory Regulatory Ordinance (SR05), which can be withdrawn at any moment.

Q:When was SEZ Act passed?

A:The SEZ Act was promulgated on September 13, 2012

Q:Are there any rules which govern the SEZ Act 2012?

A: Yes, SEZ Rules were notified in 2013 and called SEZ Rules 2013.

Q:Any amendments made in the Act so far?

A:Yes, SEZ Amendment Act 2016 was promulgated on October 26, 2016. These amendments are made to make the SEZs more conducive for businesses.

Q:What is the minimum area required for setting up an SEZ?

A:50 acres is the minimum area over which an SEZ can be established. There are no maximum area limitations for the establishment of Special Economic Zone (SEZ).

Q:What are the modes of establishment of Special Economic Zones?

A:SEZs can be established through all the three modes; through Public sector, private sector or through Public Private Partnership basis.

Q:What is the approval criterion of an SEZ?

A:Detailed approval criterion has been given at Annex-5 of the First Schedule attached to the SEZ Rules, 2013.

Q:What is the criterion of zone admission in an SEZ for an enterprise?

A:Annexure 3 of SEZ Rules provides a detailed criterion for the admission of a zone enterprise.

Q:What documents are required with zone application?

A: Annexure 6 of SEZ Rules provides details regarding documents required with the zone application.

Q:Is country specific SEZ allowed?

A:Yes, country specific SEZs are permissible. However the Developer of the zone must be a company incorporated under the laws of Pakistan.

Q:How many SEZs have been notified yet?

A: So far seven (7) SEZs have been notified. These are:

  1. Khairpur Economic Zone, Khairpur (136 acres)

2. Korangi Creek Industrial Park, Karachi (230 acres)

3. Bin Qasim Industrial Park, Karachi (940 acres)

4. M3 Industrial Zone, Faisalabad (4356 acres)

5. Quaid-e-Azam Apparel Park, Sheikhupura (1563 acres)

6. Value Addition City, Faisalabad (225 acres)

7. Hattar Industrial Estate, KPK (424 acres)

Q: How many SEZs have been proposed by provinces, AJK, GB, FATA and federal govt. alongside the CPEC?

A: So far 46 SEZs (including seven notified SEZs) have been proposed by provinces alongside the CPEC.

Q:How many SEZs have been prioritized on CPEC route?

A:During the Pakistan-China sixth JCC meeting, Pakistani side presented a list of nine prioritized SEZs.

Q:What percentage of total area of an SEZ can be used for the operations of SEZ enterprises?

A:A SEZ shall use not less than 70% of the area for the purpose of operations of zone enterprises.

Q:Is there any property limitations involved?

A: The SEZ Authorities may acquire and hold moveable and immoveable property for the purpose of carrying out their functions under the Act but shall not sell, lease, mortgage, dispose of or, transfer in any other manner the said property except for purposes consistent with the objectives of the Act.

Q:What are fiscal incentives allowed for an SEZ?

A:SEZ Developers and enterprises are allowed one time exemption from custom-duties and taxes on import of plant and machinery; and Income tax exemption of 10 years for the SEZ enterprises starting production by 30th June 2020 and 5 years to zone developers and other SEZ enterprises doing so after 30th June 2020.

Q:Can an SEZ have over and above incentives as available under section 36 and 37 of the SEZ Act?

A:Yes SEZ can avail incentive over and above as those of section 36 and 37. Within the objective of promoting hi-tech industries or particular regions, the BOA may grant additional benefits to a particular category of SEZs, zone enterprise, regions or sectors provided that: (i) such additional benefits may only be granted if the BOA finds them to be justified on the basis of an economic impact assessment; (ii) such additional benefits, if granted conditionally, may be liable to be forfeited with retroactive effect if it is finally determined that a developer or zone enterprise has failed to comply with the conditions prescribed for the additional benefits in question; and that the BOA shall make the economic impact assessment of a SEZ within five years from the date the agreement is signed and within the first year of the operation of an enterprise. Furthermore, nothing in the Act shall be construed to limit the authority of any Federal, Provincial or Local Government authority to grant such additional benefits to developers and zone enterprises as are within the scope of their respective statutory powers.

Q:What is the guarantee that the incentives once made available will not be withdrawn pre-maturely?

A:Under section 35 of the SEZ Act, these benefits shall not be withdrawn prematurely, and any change therein shall be to the advantage of the developer of the SEZ or the enterprise. Furthermore, all incentives under this Act shall be additional to all incentives, benefits and protections which may be applicable to developers and zone enterprises under generally applicable legislation and international agreements of Pakistan.

Q:What are other facilities of an SEZ?

A:Gas, electricity and other utilities will be provided at the zero-point of the Zones whereas Captive power generation is also allowed in the zone. Security within the Zone will also be provided.