Special Economic Zones investors urge govt to resolve tax issues

ISLAMABAD: Special Economic Zones (SEZs) investors have again urged the government to address anomalies in two crucial tax-related issues to stimulate investment in these designated zones.

In a letter to the Ministry of Finance, the Korangi Association of Trade and Industry (KATI) highlighted that the minimum turnover tax and the 25 per cent dividend tax were the points of contention.

Initially, under Section 113 of the Income Tax Ordinance, enterprises set up in SEZs enjoyed a decade-long exemption from all income taxes as per the SEZ Act 2016.

Pakistan has three SEZs: one in Faisalabad and two in Karachi.

A similar letter has been written to the prime minister by the investors of SEZs in Karachi.

It added that the subsequent removal of this exemption, sans consultation with current and potential SEZ investors, has ushered in an atmosphere of uncertainty.

The ambiguity surrounding the application of turnover tax on such enterprises has led the Federal Board of Revenue (FBR) to presume its imposition, resulting in the issuance of tax demands against these entities.

This regulatory maze significantly deters foreign and local investments, casting doubt on the government’s commitment to providing a conducive business environment in SEZs.

Projects within SEZs, characterised by significant capital investments and modest profit margins, are burdened by the spectre of turnover tax, which eclipses the benefits of other tax exemptions.

In response, recommendations have surfaced, advocating for the reinstatement of turnover tax exemption for SEZ enterprises, either through legislative amendments or the issuance of official circulars by the FBR.

Published in Dawn, April 14th, 2024