INDUSTRY SPECIFIC INCENTIVES

The following incentives are also available for certain specified industries, namely; electronics, fertilizers, pharmaceuticals, mining, hotel and tourism, agro-food and petro-chemicals.

Electronics Industry

The worldwide demand for software services far exceeds the current supply of skills. Pakistan with expanding expertise and growing corps of computer hardware engineers and software programmers can easily and efficiently meet the increasing demands of the international market. To develop both the software and the hardware sectors and to utilize the available labor and the material resources in Pakistan, a highly attractive package of incentives and facilities has been devised for the electronics industry.

Infrastructure Development

1. The Board of Investment are planning to develop Technology Parks at Karachi, Lahore, and Islamabad where fully developed PCD fabrication, die and mould making and high speed data communications facilities will be made available by the Government for small companies. These services will help the quick development of new businesses at these parks by private entrepreneurs.

2. A roster of professional skills available in the country will be developed by the Pakistan Computer Bureau for use by such industries who may need to hire computer related specialists.

De-regulation of Data Communications

The de regulation of ownership and operation of Very Small Aperture Terminals (VSAT) for the private Telecommunications industry will be considered after the privatization of Pakistan Telecommunication Corporation.

Tariff on Import Components

The tariff on the import of components for the electronics industry will be within a range of 10-15% of the value. The Ministry of Science & Technology will work out the details for various components groupings in consultation within the Central Board of Revenue and Board of Investment.

Financial Assistance

The government will extent loans through Society Youth Investment Promotion Society, Small Business Finance Corporation and other financial institutions for the purchase of computers and electronic equipment and components. In addition, equity support will also be provided from an Equity Fund to be created by the Government.

Income Tax relief

Income tax exemption would be available for a period of 10 years on the income of this industry.

Export promotion of electronic hardware and software

In order to promote the export of electronic hardware and software, a Unit, within the Export Promotion Bureau will be set up to identify foreign business opportunities for Pakistani companies and to advise on the appropriate marketing their products.

Optimum utilization of available facilities operated by Government departments

Government research, development, industrial and educational organizations, which are usually well endowed with research, testing development and production facilities will make their equipment available on a lease or rental basis to individuals and private companies involved in innovative technology based activities.

Treatment of R&D Expenditure

A certificate will be issued to eligible companies by the Ministry of Science & Technology stating that a project is a R&D project, then 20% of gross earnings will be allowed to be spent towards R&D project.

Support from domestic buyers of electronic equipment

The Government Departments will draw up functional specifications for electronics products to encourage their local production. In addition, a price preference of 15% will be given to local electronic products by these Departments.

Fertilizers

The plant and machinery which are not manufactured locally and are imported for the expansion of the existing units or to set up new units are exempted from customs duty in excess of 15% ad-valorem and from the whole of sales tax.

Pharmaceuticals

Plant and machinery, not manufactured locally, imported for the manufacture of pharmaceutical raw materials for such chemicals which are available in the international market without any franchise are exempted from so much of the customs duty as is in excess of 25% ad valorem and whole sales tax.

Pharmaceuticals Raw Materials

1. 10% import duty and sales tax on import of plant, machinery & equipment which is not produced locally and is required for basic/semi basic manufacture of drugs.
2. Duty and tax free import of all raw materials and chemicals similar to what has been notified for imported raw materials used in formulating drugs.
3. Tariff protection for basically manufactured raw materials by deleting the basic raw materials from the SRO meant for duty free imports. This protection would be provided as and when production starts.
4. Basic/semi basic pharmaceutical manufacturers will be exempted from sales tax.
5. For the establishment of basic/semi basic manufacturing plants, loans would be provided on the basis of debt equity ratio of 70:30.
6. Adequate tariff protection will be given to the basic/semi basic manufacture against import of finished drugs. In case of general decline in import duty regime, the same level of protective duty shall be maintained as before, both in respect of import of raw materials and finished drugs.

Mining

Income of an industrial undertaking set up between 1st July 1981 and 30th June 1998, engaged exclusively in the exploration and extraction of mineral deposits, other than petroleum, as may be specified by the Federal Government, is exempted from income tax for a period of five years beginning from the month in which commercial production commences. The specified mining-machinery and equipment imported by a mining industry, approved by the Federal Government or provincial government, is also exempted from customs duty in excess of 25% ad valorem and whole of sales tax.

Hotel & Tourism Industry

(Including recreation, amusement, aviation, adventure tourism, mountaineering, water sports, etc., both inland and island)

1. Hotels, Tour operators, tourism and recreation related projects/ facilities will continue to enjoy the status of an industry, as accorded in the Tourism Policy, 1990, and be considered as industrial undertakings.

2. Accelerated Depreciation Allowance (ADA) as available to industrial units for income tax purposes, will also be available as follows:

3. LMM credit financing shall be available to hotel/tourism industry as well as tour operators. The State Bank would issue guidelines to Banks/DFIs in this regard.
4. The Development Authorities, while calling for the bids for land disposal for hotels and tourism projects would first pre-qualify the genuine investors and new comers who will also be required to submit a feasibility study at the time of pre-qualification. Final bidding would be held among these pre-qualified parties. The cost of land would be payable in easy instalments. Land developing authorities would earmark plots for hotel and tourism projects in the master plan and if the land is not developed within the specified time by their allottees, their allotment shall stand cancelled. The state owned land/property or the evacuee property will also be made available for hotel and tourism projects on the same basis.
5. The complimentary rooms are presently subject to central excise duty. SInce the complimentary rooms are used for the purpose of sales promotion, these will be exempted from the levy of central excise duty only on a maximum of 5% of total available rooms, for five/four Star hotels.
6. Industrial tariff would be applicable in case of electricity as is being done by the Gas Companies.
7. The facilities/incentives for Deemed Export Status, as envisaged in the Tourism Policy of 1990, will be implemented and made available to hotel and tourism projects (including tour operators), as follows:
(i). The foreign exchange earnings of hotels, tour operators and other tourism projects be entitled to same rebate in income tax as available to exporter.
(ii). 5% of the foreign exchange earnings shall be allowed to be spent on opening of offices abroad.
(iii). They would be allowed to pay service charges to foreign travel agents and marketing companies out of their own foreign exchange earnings.

Agro-Food Industry

Industries/Criteria

The following industries are reckoned as agro-food processing industries:

1. Agriculture
2. Horticulture
3. Cattle and sheep farming, the production and processing of meat, milk, and related dairy products.
4. Processing, canning, packing, grading, and preservation of fruits and vegetables.
5. Inland farming and preservation of fish particularly in water logged and saline areas.
6. Production and multiplication of high yielding seeds,
7. Edible oil extraction
8. Poultry farming, poultry processing and pultry feed
9. Cattle feed
10. Milk processing

Incentives/concessions

· The imported plant and equipment not manufactured locally, shall be subject to custom duty of 10% with complete exemption from sales tax.
· Income tax structure of projects in agro-food industry will be entitled to debt-equit ratio of 70:30. Projects will be entitled to financing from all banks and development finance institutions.
· The project shall enjoy 50% exemption from the central excise duty, on production, for 5 years from the date of commencement of commercial production.
· Expatriate personnel of the units will be entitled to import their personal effects, excluding motor vehicles, free of duty and taxes in accordance with the personal baggage "Transfer of Residence Rules". They will also be allowed to import food items and other consumable without any duty/taxes up to US $600 per person per year, and on payment of duty/taxes up to US $2000 per person per year.
· Import of breeding stock will be allowed subject to an import duty of 10%.
· Locally manufactured machinery will be provided credits under the LMM credit line.
· The projects may be exempted from provincial, Municipal taxes for 5 years from the date of commencement of commercial production.
· Parts and components up to 5% of initial C&F value of imported plant and equipment shall be imported at 10% duty if imported together with the plant.

Petro Chemical Industry

Manufacture of Poly Vinyl Chloride (PVC)

1. Import duties on the import value of various intermediary products for the manufacturing of PVC will be fixed as:

2. Customs duties on the imported value of machinery for PVC shall be levied at 10%. No sales tax will be levied on locally fabricated or imported machinery.

3. Complete exemption from duty and sales tax on imported plant or machinery, for the installation of units for the manufacturing of PVC from indigenous raw material, provided letters of credit are opened up to 30th June 1996 as admissible for projects to be established in Special Industrial Zones (SIZs).

4. Exemption for sale tax on the purchase of locally manufactured machinery and equipment.

5. LMM credit would be available for the purchase of locally made machinery.

Manufacture of Pure Terephthalic Acid (PTA)

1. The tariff on the import of paraxyline be fixed at 5% for a period of 5 years till paraxyline manufacture locally, whichever is earlier, after which the full duty of 10% will be payable with the duty on PTA be 25%.
2. The import of machinery will be exempt from levy of sales tax instead of refunding it in 24 monthly installations.
3. Projects will be allowed to import of water desalination plant duty free.
4. For petrochemical and key industries, the terminal year for the levy of 10% import duty on machinery not produced in the country be advanced to 30th June, 1996 instead of 30th June 1999.
5. The wood pulp imported for use in manufacture of filter tow for manufacture of cigarettes be taxed at 10% of the value and filter tow at 25% of the imported value, as envisaged in the tariff reforms for the terminal year 1996, thus maintaining a duty differential of 15% between its raw material and finished goods.

Incentives for Development of Infrastructure Power

1. Current installed capacity of power generation is 12,530 MW (4,825 MW of Hydel and 7,568 MW of Thermal).
2. Electricity is available to only 40% of the population.
3. Per-capita consumption per annum is 300 Kwh/year.
4. Average annual increase in demand is 8%.
5. Additional generation capacity of about 54,000 MW would be required up to year 2018.
6. Minimum additional requirement for 1995 has been 900 MW. Increase to 1300 MW in the year 2000 and 5000 MW in 2018.
7. Energy generated by the private projects will be purchased in bulk by the public sector utilities agencies like Water and Development Authority/Karachi Electricity Supply Corporation. Concession period up to 30 years is allowed for projects being set up under Build Operate, own transfer/Build own transfer (BOOT/BOT) arrangements; purchase of power generated by private projects for the public sector utilities agencies, will be guaranteed by the government of Pakistan. The investors are, therefore, assured of a stable market;
8. Performance of public sector fuel supplies will also be similarly guaranteed by the government;
9. bulk tariff for the sale of electricity will be worked out on the basis of 60% annual plant factor. A portion of the tariff covering the fixed operating costs will be designated as the capacity charge, and will be paid on monthly basis irrespective of the amount of energy purchased. The balance of tariff will represent the energy charge and will vary according to the quantity of energy purchased;
10. suitable escalation will be provided for the basic price of energy, taking into consideration the key inputs only, e.g., fuel, labour and spare parts, etc.;
11. a special fund titled the Private Sector Energy Development Fund (PSEDF) has been established with the assistance of international donor agencies, which provides financing up to 40% of the capital cost of the project. Loans from the funds may have a maturity of up to 23 years, with grace period of up to 8 years. Currently the applicable interest rate is 14% per annum including exchange risk premium;

General provisions relating to fiscal and tax treatment are as follows:
1. private sector power project companies are exempted from the corporate tax;
2. power projects are allowed to import capital equipment without payment of customs duties;
3. repatriation of equity alongwith dividends is allowed freely; and
4. power projects can obtain exchange risk insurance on standard terms from the State Bank of Pakistan on foreign loans. The premium will be passed through the tariff.
5. Adequate institutional arrangements have been made to facilitate the handling of private power proposals. A Private Power and Infrastructure Board (PPIB) has been established in the Ministry of Water and Power. Similar bodies have also been created in the Water and Power Development Authority and in the National Development Finance Corporation.

Power Generation

1. Machinery and equipment, including coal mining equipment, not manufactured locally, is exempted from whole of custom duty and sales tax if imported for setting up or for balancing, modernization, and extension of power generation i.e., oil, gas, coal, wind and wave energy projects, including under construction projects.
2. Raw materials and components, as are not produced or manufactured locally and are imported for use in the manufacture of machinery, equipment, intermediary or capital goods and specialized vehicles (4 x 4 non-luxury i.e. without air conditioner and other accessories) excluding passenger vehicles to be supplied to electric power generation, i.e., oil, gas, coal, wind and wave energy projects for their expansion or modernization including under construction projects exempt from customs duty and sales tax.

Petroleum Sector

1. Machinery, equipment, materials, specialized vehicles, accessories, spares, chemicals and consumable (as are not manufactured locally) can be imported free of customs duty and sales tax by petroleum sector companies.
2. Raw materials and components for use in the manufacture of machinery; equipment, materials, specialized vehicles, accessories, spares, chemicals and consumable are exempted from whole of custom duty and sales tax.

Oil

1. all plicantions for exploration licenses are decided within 60 days, the disputed or contested applications will be decided with a maximum period of 120 days;
2. expeditious and equitable disposals of applications is ensured through a standing committee in the Ministry of Petroleum and Natural Resources on which all the concerned federal and provincial organizations are represented;
3. the sharing in concession i.e., shouldering exploration cost and acquiring share in development is done on the basis of competitive bidding;
4. local companies are encouraged to invest with the foreign companies and OGDC in exploration;
5. foreign exchange requirements of exploration companies which paid their share of oil/gas in local currency are fully met by the government;
6. the import of drilling rigs, logging trucks, siesmic equipment, well cementation equipment, and snubbing units, all equipment's for exploration, development and production off-shore is duty free;
7. the equipment imported for enhanced oil recovery is also subject to the same concessionary rate of duty. All other machinery is subject to 5.25% duty. Moreover, the exploration companies are entitled to all such benefits as are admissible on its export for the use of locally manufactured machinery and equipment.
8. the price of non-associated gas is at par with the high sulphur fuel oil price less such discounts as may be negotiated at the time of signing the concession agreements;
9. the price of LPG is linked to its international price with appropriate discount to encourage its local production