The US$56 billion China-Pakistan Economic Corridor (CPEC) – a part of China’s “One Belt, One Road” vision – has yet to translate into the game-changer envisioned by its sponsors. Worse than that, the unparalleled tax breaks and mounting security costs involved have already saddled Islamabad’s exchequer with a hole in its finances of more than US$2.5 billion.
Pakistan’s lower house was informed last month that the government had issued a statutory regulatory order (SRO) giving a series of tax exemptions to Chinese firms as an incentive for working in what is considered a highly dangerous zone. These concessions – extensive tax breaks from customs duty, income tax, sales tax, federal excise duty and withholding taxes – have been granted to Chinese companies for the whole of the CPEC operation, including road, mass transit, and Gwadar port projects.
“There is absolutely nothing in the CPEC for the local trade and industry; even the labor is coming from China, which will cause a steep escalation in the operational cost of the project,” said Muhammad Ishaq, a leading industrialist and a director of Khyber Pakhtunkhwa Board of Investment and Trade in conversation with Asia Times. He cautioned CPEC will be a big disaster for Pakistan in the long run.
Interestingly, while affording concessions to the Chinese companies, Islamabad went back on its oft-repeated position policy on tax immunity. Only this month, it withdrew tax exemptions worth Rs100 billion (US$945 million) with the aim of bringing its budget deficit down. Since 2014, it has withdrawn around US$3.25 billion in exemptions.
The generous tax holiday to Chinese contractors and companies is in addition to the US$1 billion sum Islamabad has so far pledged to put in place a failsafe security to protect the CPEC-related projects and the Chinese personnel working on them. The overall project cost is expected to jack up thanks to the induction of a 15,000-strong force to provide round-the-clock surveillance.
In August last year, Pakistan’s military establishment set up two Special Security Divisions (SSDs) to provide security cover for Chinese personnel and CPEC installations from Gwadar in the South to Rawalpindi and Khunjrab in the North. It is believed that initially the Pakistani side pushed Chinese officials for the reimbursement of security-related costs; the latter would not yield, however, stating that security for the project was none of their business.
“There is absolutely nothing in the CPEC for the local trade and industry; even the labor is coming from China”
Sadly, Islamabad decided to bill domestic electricity consumers for the astronomical CPEC security outlay. Consumers are having to pay a surcharge in their utility bills to allow for a security spend of 1% of the capital cost of CPEC projects.
Pakistan will have little or no foreign exchange inflow back into the country while it will pays US$90 billion back to China over 30 years against loans and investments worth US$56 billion under CPEC. “The average annual repayment of CPEC will be US$3.7 billion,” Saad Hashemy, an analyst at the brokerage house Topline Securities, said in a report titled Pakistan’s External Account Concerns and CPEC Repayment.
The Central Bank of Pakistan highlighted in its quarterly economic review heavy borrowings from Chinese commercial banks at “questionable rates” to pay for the import of Chinese machinery. During the first quarter of the fiscal year 2016-17 Chinese loans surged to US US$979 million, compared to US $138 million during the comparable period the previous year. The terms of these loans seem dubious at best. Independent economists warn Pakistan seriously risks another International Monetary Fund bailout once the outflows on loans and profits to China begin.
China has checked all the boxes to ensure that Pakistan becomes it’s concubine for eternity…There are no guarentees that Pakistan will earn xyz amount for letting Chinese goods pass through its legit and illegally occupied terrotories. So much money (3x) to be returned?? What kind of investment is that? Every sensible Pakistani Analyst has questioned this sharade of Chinese investment.
It must be give and take policy Why PAKISTAN is not allowing India to trade with Afghanistan and Other Central Republics
Ha ha You must be joking India’ GDP IS 2.3 TRILLION dollars PAKISTAN around 270 billion
INDIA’ s growth rate is 7.3 % and Pakistan is around 4-5%
It will take around millinium year for the PAKISTAN to achieve the GDP of India ,even if the achieve the growth rate of 10 %
CPEC will be the huge game changer for PAKISTAN But for that ,they must not allow big tax relief and and other subsidies
They should also ensure the rate of interest must not be too high From many sources I have known ,PAKISTAN will have to pay high rate of interest
The Jerk writer sounds more a payee / but he does not seem fool, the wording of article shows it has been written delibrately. there are people in media in Pakistan who are payee and write delibrately to spread specific point of view and agenda
have a look at this writers linked in , twitter and please read carefully they way he introduced himself on profile page of Google blogger
https://pk.linkedin.com/in/f-m-shakil-b9221458
https://twitter.com/faq1955
https://www.blogger.com/profile/01523151451205066801
With around the same in inflation…
Who’s A M Shakil?
Let me give you a one line answer. There are only national interests, no friendships or cultural mixups as you alleged. (There are a whole lot of Pakistanis working in China). My friends are working there. Just because its not reported doesn’t mean its not there.
the article is having a narrow view of some businessmen losing out on deals
In order to counter balance China Pakistan should allow smooth trade between India Afghanistan and other middle east countries.India is bigger market than China for Pakistani products due to cultural similarities.To achieve economic prosperity Pakistanis have to give up Jehadi mentality.
csdggwegew
All these are just "teething" problems of CPEC project and will be overcome. When completed, CPEC will transform Pakistan into an Asian Economic Tiger and counterbalance hegemonic India which will come around eventually to open its borders for trade with Pakistan and China . It will turn into a win-win situation for all. Prosperity and peace for all in S. Asia and beyond. We must thank stars and Nawaz Shaif who is the real dreamer and architect of this project.
Everyone in Pakistan know fully well it wouldn’t be a country in the run after a couple of years.
its seems china is about to conquer Pakistan as East India Company did with Sub continent…
I am not an economist. I could see high power transmission lines laid over hills to carry power from Nehin Nehlum Jhelum power project. Both Chinese and local workers work there. Local workers making relativity good money. America consumes 40%of world’s energy. Abs that makes you powerful. CEPC is infrastructure development and that we witness it is happening.
Beware or be cautious for the ‘losing of the steam’ soon from cultural incongruency or disparity. Pakistan is a Muslim and a religious People. The Chinese are basically almost secular, and religion is left within the inner confines and recesses of one’s private space or home. To put it bluntly, the Chinese People in its public face and profile are mercantile and so it’s all about making money or wealth creation, not only that, they are taught at an early age to enrich oneself for three generations! Note! I repeat. God does not come into the equation. These are ‘worker ants’! Work for the money, work for the money, work for the money – that is the only tune they know. Even when they make friends, the question at the back of their mind is whether this ‘friend’ is a ‘friend’ that would mutually be money good for me? I suggest that the Pakistani Government send young Pakistanis to work in China under Chinese ‘work, work, work conditions’ for a year to test whether the Pakistani youth who are going to benefit from this infrastructure would like that sort of ‘work hard, then enjoy hard’ life. Or, should it be best to ‘mishahallah’ – ‘God willing!’? I am Chinese. I am an old man now. Now looking back, I ask myself whether I should not have worked like an ox. No, I would have done the same thing. No regrets. I could have gone astray had I been not totally occupied all my life. Moreover, my parents and their parents before them were all ‘oxen’. So, I was born that way. I was born ‘Chinese’. I would not have known how to enjoy myself. I would have felt guilty. But if I were born a Pakistani and taught to live my life for God and leave myself to his mercy and benevolence? Well, I cannot answer that …….
Surely not perfect and Chinese are ruthless negotiators but this is still Pakistan ‘s once in a lifetime opportunity for development.
the belt and road,project is full steam ahead,with the entire asian continent involved,not only pakistan,this does not include the free enterprise with private industries,that will create the jobs,your assesments only has figures from public issues,we have to wait for at least 2025,to evaluate,the leve of progress,which is full steam ahead,sad india is not playing a part,it will soon join
F.M. Shakil, are you paid by Modi or Soros ?
Actually Pakistan hit 5% growth last year and is doing rather well !