Pakistan's Ministry of Maritime Affairs on Thursday refused to share the Gwadar Port concession agreement with parliament, citing a confidentiality clause – a move that raised more questions in the minds of senators about transparency of the deal.

The maritime affairs secretary did not share the Gwadar Port and free zone concession agreement with the Senate Standing Committee on Finance, which directed it twice to produce the key document.

Committee proceedings also disclosed that the government had proposed changes to the tax regime for charitable organisations, under pressure from the Financial Action Task Force (FATF).

The Pakistan Tehreek-e-Insaf (PTI) government has also allowed existing construction projects to get the benefit of Prime Minister Imran Khan’s second tax amnesty scheme.

“The 2007 and 2013 concession and novation agreements cannot be shared, as there is a confidentiality clause in the agreement,” said Maritime Affairs Secretary Rizwan Ahmad during a meeting of the Senate Standing Committee on Finance. The committee had sought the document after the secretary acknowledged a day earlier that under the 2007 concession agreement only a 20-year tax holiday was agreed and there was no mention of sub-contractors.

The government has proposed a 40-year tax holiday for Gwadar Port concession holders, developers, contractors, lenders and sub-contractors. In the past, the agreement had never been shared with either the National Assembly or the Senate, said the secretary, inviting fierce reaction from the committee members.

“If a bureaucrat, who is in possession of the agreement, is more honourable than a senator, then there is no need for having Senate,” said Senator Talha Mehmood of the Jamiat Ulema-e-Islam-Fazl (JUI-F).

The standing committee chairman termed the secretary’s statement about “confidentiality” a breach of parliament. “Business contracts are never confidential,” said the chairman, who is also a lawyer of the Supreme Court of Pakistan.

However, he said if it was written that terms and conditions would remain secret, then these could not be disclosed. Committee Chairman Senator Farooq H Naek clarified that committee members were not against giving concessions rather they wanted the original agreement to be implemented in true letter and spirit.

Gwadar Port along with the China-Pakistan Economic Corridor (CPEC) has the potential of triggering development and ending poverty, said the committee chairman.

He said the committee was in favour of meeting the international commitments made by Pakistan.

“We want to give concessions to Gwadar Port but at the same time we will have to protect interests of Pakistan,” remarked Senator Ayesha Raza Farooq. The standing committee also reacted to giving a sketchy list of contractors of Gwadar Port and its free zone.

Ahmad said under the agreement it was the responsibility of the concession holder to hire sub-contractors and the government had nothing to do with it. Senator Musadiq Malik asked the maritime affairs ministry to submit a verified list of sub-contractors and contractors.

His argument was that the standing committee could not recommend tax concessions without first having a look at the original and novation agreement. The secretary said the concession agreement had been approved by parliament through the Finance Bill 2016 but there were three issues where the Federal Board of Revenue (FBR) had a difference of opinion. He said these three concessions were now being proposed through the Finance Bill 2020.

Ahmad said he was ready to show the agreement to the standing committee in the next meeting but the copies had to be returned to him after the meeting. But MQM’s Senator Mian Ateeq objected to the secretary’s condition.

Charitable organisations

The standing committee began clause-wise discussion of proposed amendments to the Income Tax Ordinance 2001. It appeared that major amendments were proposed under pressure from a lobby or a stakeholder or under any international obligation like with the FATF and the International Monetary Fund (IMF).

The standing committee rejected the government’s proposal to limit donations to charitable organisations, owned by the persons themselves or their business associations. The government has proposed a ceiling to discourage tax avoidance and meet an FATF condition.

“We are under international pressure to regulate charitable business,” said FBR Member Policy Dr Hamid Ateeq Sarwar. The government has proposed that an individual can only give 15% of its profit in charity as against the existing 30% and a company can give 10% of profit in charity as against existing 20% limit.

The private sector played a major role in providing relief after the 2005 earthquake, 2010 floods and during the Covid-19 crisis, which the government now wanted to discourage, said Senator Talha Mehmood.

According to another proposal, which the committee also rejected, the charitable organisations would have to disclose names of their donors.

“We are economically weak and are not sovereign, therefore, we are forced to accept these conditions,” said Sarwar. The government seemed to have the intent to let charity work collapse, said Malik.

The standing committee also found serious flaws in the prime minister’s tax amnesty scheme for the construction sector. It found that neither the scheme was well-designed nor would it achieve the objectives due to various limitations.

The government has further relaxed conditions for availing the scheme. The committee recommended that the duration of the scheme should be enhanced to five years and the definition should be simplified for making individuals eligible for the scheme, which in its current form is largely limited to the big guns.

“It appears to me that the construction sector tax amnesty scheme has been designed to allow existing projects enter from the backdoor instead of creating a new class of beneficiaries,” said Senator Malik. “The source of income will not be asked by the FBR but there is no immunity from NAB that can still ask about the source of income,” confirmed Sarwar.

PTI’s Senator Mohsin Aziz defended the tax amnesty scheme, terming it the “only scheme” that would benefit the economy. The standing committee endorsed the proposal of exempting the sale and purchase of plots from capital gains tax from eight years to four years.

Published in The Express Tribune, June 19th, 2020.

https://tribune.com.pk/story/2245647/2-govt-sets-condition-share-gwadar-deal/