ISLAMABAD: A Senate panel on Tuesday opposed certain tax benefits by name to two companies operating in Gwadar through the Finance Bill 2020-21, with some members calling the move ­“vulgar”, “ridiculous” and “shocking”.

“Who are the people behind these companies?” they repeatedly asked. “How can a company’s name be included in the law?”

The Senate Standing Committee on Finance & Revenue led by Senator Farooq Hamid Naek also set the principle under Article 73 of the Constitution that it would not approve any clause to be included in the Finance Bill if it did not pertain to imposition, abolition, remission, alteration of regulation of any tax.

Senator Naek advised the members that the committee should also not allow something to be included in the money bill if it provided for the imposition or alteration of any fine or other pecuniary penalty, or for the demand or payment of a licence fee or a fee or charge for any service rendered or those taxes that fall under the domain of any local government.

The committee members took strong exception to a proposed amendment in the Customs Law (Clause 3-19/i-a) for exemption from custom duties on ‘equipments and materials including plant, machinery, appliances and accessories imported by the concession holders, its operating companies “including Gwadar International Terminals Limited and Gwadar Marine Services and their” contractors and sub-contractors exclusively for construction and operation of terminals and Free Zone area for a period of 40 years.

Under the existing Customs law, the exemption was there but the names of these two companies are specifically proposed for insertion.

Senator Attique Shaikh of MQM and Senator Mohsin Aziz of PTI recalled that a similar clause — without naming these companies — had been brought before the Senate panel and was rejected because it could not allow such an open ended facility to any company. “It is vulgar to allow a tax facility by name to a company in the law and leave it so open,” said Senator Dr Musadik Malik of PML-N. “This is shocking,” said Senator Sherry Rehman of PPP.

The senators said it was impossible to restrict the use of such equipment and machinery for specific use at Gwadar. What mechanism is there to ensure a truck imported for Gwadar with duty exemption would not be used in Sahiwal or Hyderabad, questioned Malik. He said the companies and their sub-contractors appeared to be more important than General Ziaul Haq whose name was written in the constitution.

Senator Rehman wanted to know who owned the company or its sub-contractors. She said it was shocking that an exemption had already been given in the law but it was being made company specific. Senator Shaikh said the contractors and sub-contractors were ‘nears and dears’ of a family who wanted business protection for over two decades. “This is ridiculous,” he exclaimed.

Member Customs explained that the amendment had been proposed by the Ministry of Maritime Affairs on the basis of government to government agreement on Gwadar Port. He said a summary for the cabinet was moved by the ministry recommending changes relating to law pertaining to Gwadar. Accordingly, the Tax Laws Amendment Ordinance 2019 was promulgated on October 6, 2019 but the law was not approved by the Parliament. Therefore, the change happened through the money bill.

Senator Mohsin Aziz said the panel could not allow such a facility without first going through the government to government agreement.

The committee members also opposed another amendment that sought tax exemptions for 23 years from July 2016 for businesses like packaging, distribution, stuffing, destuffing, CFS, container yard, warehousing, including cool and cold rooms, transshipment, labeling, export and import value addition others for Free Zone area.

Senator Naek said the tax exemption pertained to “retrospectivity” since 2016. He advised the senators to examine the original agreement before formally rejecting the proposals. The members, however, proposed that the committee should register in writing serious reservations over such open end tax benefits.

Secretary Finance Naveed Kamran Baloch agreed to the observations that strange things had been proposed in the money bill.

The committee also objected to powers being sought under the Finance Bill for “advance ruling” by a board or officer or committee of the Federal Board of Revenue for ‘determination or classification, origin or applicability of a particular relief on goods prior to their import or export for a certain period.

The senators said the imports and exports were dealt under HS Codes while the proposed change appeared to be in violation of the Article 73 of the Constitution and provided an element of discretion to the tax machinery which could not be allowed.

Member Customs explained that there were only 5,300 HS Codes in Pakistan while internationally more than 195,000 HS Codes were applicable. He said the ‘advance ruling’ regime was required to be introduced by September 2020 to comply with commitments given under the World Trade Organisation (WTO) and Trade Facilitation Agreement.

The committee, though agreed in principle, for collection of petroleum levy and its monthly deposit in the public kitty on the pattern of sales tax but linked its clearance to similar other clauses which the senators said did not qualify for the money bill. It was decided to examine various court rulings on the subject before taking a final decision.

Published in Dawn, June 17th, 2020