Special Economic Zone

“A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country’s typical or national laws.”Nationwide” laws may be suspended inside a special economic zone. The category SEZ covers, including free trade zones (FTZ), export processing Zones (EPZ), free Zones (FZ), industrial parks or industrial estates (IE), free ports, free economic zones, urban enterprise zones and others.

Usually the goal is to increase foreign direct investment, development of infrastructure and to increase employment.

” – Wikipedia On September 10, 2012, at an impressive ceremony at the Presidency, Pakistani President Asif Ali Zardari gave his consent to the Special Economic Zone Bill 2012. The journey from conception to signing took four long years but it was worth the wait. It all began when Pakistan Japan Business Forum, a bilateral Forum that I helped establish, floated the idea of a dedicated SEZ for the Japanese investors. The ball got rolling when Salim Mandviwalla, the energetic Chairman of Board of Investment embraced this idea and motivated his team to prepare an attractive SEZ package.

The central aspect of the Act is the formation of a high-powered Board of Approval with the Prime Minister as the Chairman. This, in itself, manifests total commitment towards development and success of SEZs.

The salient features of the Act include the approval of Zones not less than fifty acres. Upto 30% of the Zone could be used for social infrastructure. This would be attractive for those investing and working in any particular Zone. The government would ensure the provision of public utilities and transportation links upto the zero point of the Zone.

Furthermore, the government would promote the adoption of simplified administrative procedures for SEZs with relevant Federal and Provincial authorities and agencies. Such facilitative procedures include issuance of licenses, permits and approvals, satisfactory customs and other documentary requirements, easy fulfillment of tax or duties obligations, and support and authorization of modern means of communication and e-governance.

The country’s labor laws would be equally applicable to the Zone Enterprises too. Moreover, the Board of Approval may, after consultations with concerned Ministries and governmental agencies, issue special rules for employment of non-Pakistanis in key managerial and technical positions. These relate to issuance of visas, temporary residence permits, as well as temporary work permits. Their dependents would be facilitated though these special rules.

Each Zone shall be designated either as a Free Trade Zone, Export Processing Zone, Multilateral Economic Zone, Regional Development Zone, Reconstruction Opportunity Zone, Hybrid Export Processing Zone, Sector Development Zone, or Extra-Territorial Zone depending on specified characteristics. An ETZ would be out of the ambit of the customs territory of Pakistan so that transportation of goods and provision of services from and to these areas and to and from the customs territory of Pakistan shall be considered as export and import. They would get the same treatment for rebates and other advantages. All incentives under this Act shall be in addition to all incentives, benefits and protections that may be applicable to Developers and/or Zone Enterprises under generally applicable legislation and international agreements of Pakistan. These benefits shall not be withdrawn prematurely and any changes shall be to the advantage of the Developer or the Zone Enterprise.

Developers shall be entitled to the following benefits:

• One time exemption from all customs duties and taxes for all Capital Goods imported into Pakistan for the development, operation and maintenance of a SEZ entity, subject to verification and approval from Board of Investment.
• Exemption from all taxes on income accruable in relation to the development and operation of the SEZ for a period of ten years, starting from date of signing of the development agreement.

All Zone Enterprises shall be entitled to the following benefits:

• Exemption from custom duties and taxes on imports of capital goods into the SEZ for installation there
• Exemption from all taxes on income for a period of ten year starting from the date the Developer certifies that the Zone Enterprise has commenced commercial operations with the relevant SEZ.

A very relevant feature is the alternative dispute resolution clause. It would be advisable to utilize the expertise available at Karachi Center for Dispute Resolution to prepare an effective mechanism for a mediation process so that the investors and developers can utilize their energies towards the success of their endeavors.

Pakistan is strategically well-placed to be the ideal center for setting up industries to cater to the Middle East, Central Asian Republics, and Afghanistan markets. The country also welcomes import-substitution industries. The future benefits of the Act for Zone Enterprises would be immediate savings in taxes, duties, and other front-loading charges, a safe and secure working environment, preferential treatment of products and services (such as Reconstruction Opportunity Zones concept initiated by US Government but remains in limbo till this day), and, more importantly, accessible domestic and global markets.

The various bilateral Forums, FPCCI, the Chambers and Associations, as well as Pakistani diplomats based in foreign countries must promote the SEZ Act. The Prime Minister should order the setting up of SEZ Authority and advise the provincial governments to set in motion plans to establish the Provincial SEZ Authority in their respective provinces. Hopefully, Chairman BOI must have set up the relevant infrastructure in the Board so that the foundation for implementation of the Act is firmly established. Pakistan urgently needs foreign direct investment and the Special Economic Zone Act is the Motorway on which FDI will substantially enter this country.