Improve customs rules for CPEC one-window solution | by Kanwar Muhammad Javed Iqbal

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Improve customs rules for CPEC one-window solution


THE Federal Board of Revenue (FBR) has formulated draft Customs Rules vide SRO 47(I)/2021 dated 19 January 2021, for activities related to the CPEC and functional aspects of Gwadar Port.

For this purpose, a new Chapter i.e. ‘XXXIX’ titled ‘China-Pakistan Economic Corridor (CPEC)’ is being incorporated in the existing Customs Rules 2001.

It spreads over Articles 837 to 870 and has four sub-chapters i.e. (i) Gwadar Tax-Free Zone Rules, (ii) Imports by Concession Holder and Operating Companies, (iii) Import and Supply of Ship Bunker Oils for Gwadar Port, and (iv) Special Economic Zone Rules.

It was a much-needed and very timely step by the Government of Pakistan. Overall, these are very good rules and have been formulated by considering various aspects particularly related to the operational aspects of a port.

The good thing is that it provides full liberty to the investor and the clearing agent to get examined and assessed the imported goods into the Free Zone in accordance with the provisions of the Customs Act, 1969.

This chapter provides clear guidelines regarding incentives for operational vehicles and movement of the petty goods and items are well defined. However, there is a need to compare the arrangements with a few leading Tax-Free Zones worldwide in order to make competitive arrangements.

Since these rules are being introduced in the form of an additional chapter of existing Customs Rules 2001, there is a need to cross-examine the confusion, clash and/or contradiction that may arise due to overlaps and/ or any misleading clause in these rules viz-a-viz the conceptual framework of overall CPEC and Gwadar Gateway endeavor.

Proposed Clause 861(5) of the draft rules refers to requirements regarding transshipment and transit by linking them with other Acts or legal instruments, while emphasizing the provisions therein these rules.

This text might create confusion due to overlaps viz-a-viz requirements laid down vide proposed clauses 839, 840, 841, 842 & 843.

Earlier, FBR introduced Transportation of Coastal Goods Rules as Chapter XXXVI of Custom Rules 2001 vide SRO No.1242(I)/2020 dated 19 November 2020 that cover port operations including the Full Container Load (FCL) and Less Than Container Load (LCL) for which competitive transshipment cargo handling tariffs is being advocated by the stakeholders concerned.

Whereas; Ministry of Maritime Affairs (MoMA) has prepared a draft concept paper on the transshipment potential of Pakistani ports and transforming them into regional transshipment hubs.

Apparently, these three documents seem to be quite different but there might be overlaps or contradictions which are likely to cause cumbersome requirements thus act as a negative factor towards the concept of a Tax-Free Zone at Gwadar.

A recent consultation with clearing agents depicts that they are fully comfortable with the draft rules.

At the same time, some investors have found ambiguities and confusion viz-a-viz the schematic arrangement of the Chapter and its coherence with the scope and spirit of a Free Trade Zone where the one-window operation is being advocated.

This chapter has cross-references to the application of existing custom duty. Therefore, there is a need to revisit the text of Clause 861(5) and the applicable customs charges under the existing clause of custom rules 2001, by creating synergy with other existing and forthcoming legal requirements, in accordance with the true essence of a Tax-Free Zone at Gwadar.

Guidance may be sought from rules for Free-trade Zone (FTZs) in Dubai which are special economic zones set up with the objective of offering tax concessions and customs duty benefits to expatriate investors.

Singapore also has free trade zones (FTZs) operating and regulated under the Free Trade Zones Act originally enacted in 1966 and last amended in 2014.

Singapore’s FTZs allow companies to store their merchandise temporarily until they are loaded to a ship or an aircraft without customs clearance.

The proposed set of FBR’s CPEC rules does not provide an exclusive incentive-based list of items and taxation regime separately though the timeframe for the retention of imported items is found very reasonable.

Besides, there is an apprehension that the existing taxation trends by Balochistan Development Authority (BDA) might not interfere in the context of Gwadar port operations through its likelihood is very negligible as GPA is fully a federal subject.

It is likely to create some confusion and hurdles in ease of doing business at Gwadar Tax-Free Zone.

There is a need to introduce a separate clause for this arrangement for better clarity in the document.

Guidance may be taken from the Singapore Government that was quite successful in formulating and putting into practice its incentivized taxation regime particularly the GST Guides for Free Trade Zones published on 31 December 2013.

The proposed rule under clause 839 (7) addresses the requirement for hazardous goods/material. Whereas, the licensing requirements are unclear about such legal binding at the time of issuance of a license to the economic operator.

Economic operators should be required to maintain an Inventory of Hazardous Material and put into practice Hazardous Material Management Plan with proper procedures.

This requirement needs to be part of the licensing requirement for which necessary text be added in the proposed rules.

In a nutshell, the Government of Pakistan has taken timely steps and came up with a good document that can be improved with little effort in order to provide ease of doing business and attract more investments for the development of Gwadar Gateway on a fast track basis.

The current legal arrangement is apparently giving a picture of the cumbersome procedure, which is likely to be problematic in attracting the investors and accruing real benefits from desired one-window operation at Gwadar Free Trade Zone.

There is a need to provide not only the concept of one-window operation but also to support and safeguard it by making all legal and regulatory frameworks in the form of one document for all solutions.