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 Since 2014, it has withdrawn around US$3.25 billion in exemptions.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.
46 BN for a road to bring Chinese trucks laden with Chinese goods from Chinese factories to Chinese built port of Gawdar to be loaded to Chinese ships for Chinese export dollars.. and somehow Pakistan is all excited.. 😉
Pakistan is going to suffer in the hands of Chinese as India was suffered in the hands of colonial British Empire ..
Local manufacturing is degrading .
Chinese military presence in Pakistan in the name of security .
Export decreasing.
China will use cheap labour of Pakistan only for use and benefit of China.
Pushing low quality and expensive material in Pakistan economy ..
Outdated and inefficient power plant set up in Pakistan .. Thus electricity produce is very expensive .
It’s same as British ruled half of the world .. Now it’s same tactice now following by Imperial China
عامر یوسف There was a time before mahamood sir..
India doesn’t have to join CPEC. It has already opened a land route from Iran through Afghanistan which connects Eastern Europe, Russia and countries like Turkey, Kazakhstan, etc.
Maria Younis : We agree if Pakistan agrees to be our Concubine.
Rajeev Chawla inflation in last 4 years were all time low, b/w 1 to 3.5%
Devendra Jha
India is trading with all the nations you mentioned it’s just that it’s very expensive if you have to bypass Pakistan.
Kashmir is the core issue…..get that sorted that all parties concerned are happy with the outcome and the Pak-indo problem is solved.
In my opinion joint administration of Kashmir between Pakistan India and the Kashmiris seems to be the only solution.
India wants the LOC as the international border which Pakistan will not accept.
Pakistan wants Kashmir to be a province of Pakistan which India will not accept.
Kashmiri want a independent country which neither India or Pakistan will accept……joint administration seems to be the only way out.
Loooool
Was it not the India leadership that said Pakistan would not last more then a few months and then would come running to India……70 odd years and am still waiting for the Indian predictions that pop up every decade of pakistans demise.
Anil Parmar
If India gives up its mass oppression of Kashmiris (blinding-murdering-raping-torture) then Pakistan and India can have a economic relation.
If your not moving forward your moving backward becuase the world isn`t stopping. Hopefully rural areas will see increased commerce and cultural exchange with Chinese workers and the Pakistani people will blossom into acceptance of different cultures and faiths. It is a step forward for humanity, a chance to better lives. If you aren`t for that, you must examin what it is you stand for.
PAKISTAN China dosti zindhabad
PAKISTAN zindhabad
MashaAllah beautiful cpec
Pakistan china dosti zindhabad
Why so much hate sir?
Devendra Jha – per capita GDP is not the same as GDP. (Not that GDP is actually a useful or meaningful reference for a nation’s economic strength. GDP can be a very rough and sometimes even misleading indicator.)
Where did you get this numbers? Source please!
Mr. Ken dont worry i am pakistani. do not think about haters we know them and we dont care. They are chameleons. By the way if they are good enough why not put there self in competition rather then only hate.
CPEC is bad bad bad bad ….. bla bla bla bla.
I like popcorn when it jumping in hot pan. Hahaha
When I read news papers of some countries feel they are willing to do within 2 sec but fear of isolating is like paralyzing of 18 year old young boy. Next month will be eye opener for many haters. We are busy in summit, keep writing entertaining stuff. Hahaha
Devendra Jha well you have to give Kashmiri’s what they want first. Keep in mind Afghanistan and India relation throughout history was Mahmood and Somnath. It is going to be same in future
Anil Parmar : Bhoot Ke Mukh Se Ram ka naam? Nahin Ho Sakta bhai…