Gwadar Port has the potential to transform the country’s economic status forever. Strategically located Gwadar enjoys prime importance as it marks the confluence of South Asia, West Asia and Central Asia. The port city is emerging as modern investment center in the region. This month, President of Pakistan promulgated ordinance to grant tax concessions to the Gwadar Port and its free zone in a move to attract foreign investors into the port. Islamabad has already approved sales tax and federal excise duty exemptions on the import of machinery, equipment, and material either for use in Gwadar Free Zone or for export, subject to the condition that all such imports were made by investors of the free zone. It approved tax exemptions for the businesses to be established in the Gwadar Free Zone area for a period of 23 years with effect from July 2016 on their packaging, distribution, stuffing and de-stuffing, CFS (container freight stuffing), container yard, warehousing including cool and cold rooms, transshipment, labeling, light-end assembly, re-assembly, imports, exports and their value addition, and all related commercial activities.
A special industrial development zone with an area of 4,000 hectare has been proposed for setting up various industries in Gwadar. The export processing zone has also been planned for assembling plant and other industries. Oil storage yard and refinery have also been proposed in the north of Gwadar town. Gwadar is poised to emerge as a hub port providing facilities of warehousing, trans-shipment, transit and coastal trade and the commercial and industrial openings for international export-import trade. The proposed industrial zones in the port city of Gwadar would contribute to the harnessing of the country’s potential in natural resources and development of heavy and large-scale industries, petrochemicals and manufacturing.
Federal government has also approved legislative changes to address a longstanding issue of tax concessions for Gwadar Port and Gwadar Free Zone. For the last three years, China wanted Pakistan to amend the Income Tax Ordinance, Sales Tax Act and Customs Act. The decision of amendment was recommended by the National Development Council (NDC), which is chaired by the Prime Minister Imran Khan with Army chief as its member. The new tax concessions have only be granted to the Gwadar zone. China Overseas Port Holding Company Limited (COPHCL), the operator of Gwadar Port, has been granted tax exemption for 23 years to help establish industrial units at the Gwadar Port. This decision was a step towards rearrangement of the Chinese manufacturing industry in Gwadar, and busying the local labor.
In 2013, the concession agreement with the COPHCL included a tax holiday for both the operators of Gwadar Port and the businesses being set up there. The country approved income tax exemption for Gwadar Free Zone on the income of operating companies from port operations. The income tax holiday was not only extended to COPHCL but also to Pakistan Private Limited, Gwadar Marine Services and Gwadar Free Zone Company.
Gwadar Port will open up the hinterland. Besides, serving as transshipment hub, it would promote the development of a refinery and petrochemical complex and other industries. Gwadar has already attracted Saudi Arabia, which has agreed to invest $11 billion for establishing oil refinery and petrochemical complex at the port. With the construction of a state-of-the-art oil refinery and petrochemical complex in Gwadar port city, Pakistan would be able to capture markets in China and landlocked Central Asian states where fuel supply takes weeks to reach through other routes. According to one estimate, the fuel transportation to China through the CPEC would take just seven days as opposed to the western route that takes almost 40 days. The proposed oil facility would help refine and store imported oil for onward transportation to China and develop fuel supply chain for the landlocked Central Asian counties.
The tax incentives as announced by the government would mobilize the private sector for setting up the manufacturing and assembling units in the new port city of Gwadar. The country has already announced a 15-year tax holiday for the proposed Export Processing Zone (EPZ) that has been planned near the Gwadar Port for local and foreign investors. Pakistan automobile market is dominated largely by Japanese and Korean manufactures like Suzuki, Honda, Toyota, Hino, Hyundai and Mazda. Many foreign manufacturers including Chinese are reportedly in negotiations with Pakistan to start assembly operations in the country. These incentives will attract manufacturers to establish the manufacturing and assembling units in Gwadar. Serious efforts on the part of the government will start at least assembly operations in Gwadar. The assembling units in the country are already assembling most of the world leading brands and the government can facilitate the private sector to set up assembling units in Gwadar.
Prospects are bright for China for setting up automobile units in Gwadar. China’s vehicle market is the world’s third-largest behind the United States and Japan, but the after-market segment is in its relative infancy. In the United States and Europe, after-market sales account for roughly 70 percent of the auto industry. According to an estimate, after-market sales accounted for one-third of the total industry in 2002 in China. It totalled roughly $23.7 billion in 2004. The sector has been growing at 8 percent a year and is on track to reach $31 billion this year. China’s auto market has gone into overdrive in the last five years as millions of Chinese bought their first cars. Now, the market for replacement parts and service centres is racing to catch up.
The $60 billion China-Pakistan Economic Corridor (CPEC) and Gwadar Port are expected to usher in a new era of industrial development in the country. The opening of Free Trade Zone and EPZ will open the doors for development of small, medium and large scale industries generating revenue for the government and providing profitable avenues for both the skilled and non-skilled workforce in the province. The potential investment areas in Gwadar include fish processing, crabs processing, cold storage, ice factories, sea-water reverse osmosis desalination plants, shrimp farming, boat building and naval architecture institute, oil storage tankers, ferry service for Karachi Ormara-Pasni-Gwadar and up to Oman and Dubai.