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 Since 2014, it has withdrawn around US$3.25 billion in exemptions.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.
@Abhijit Gupta: copy and paste much? I see you have reposted your post at least 3 times so far.
The Pakistan is all excited about CPEC is not at all what you’ve described here.
Go read some FACTS on CPEC, will ya?!
https://en.wikipedia.org/wiki/China–Pakistan_Economic_Corridor
@Falcon Dave:
"So much money (3x) to be returned??"
Where did you get that number? You mean Pakistan has to return $3 for every $1 it borrows? Are you talking about a 200% interest rate for a loan??? I hope you can quote a source to back up your claim, though I doubt very much if you can.
If you want to lie, at least make it sound reasonable.
I think "Every sensible Pakistani Analyst" would have questioned (probably laughed off) your outlandish claim here.
@Devendra Jha: what are the "many sources" you "have known"? Can you share a few with us? And what is "high rate of interest" by your definition? Is an interest rate of 1.5 – 2% high? Those are the interest rates of the commisnary loans extended to Pakistan by China.
If you are not sure, here a reference for you:
"For comparison, loans for previous Pakistani infrastructure projects financed by the World Bank carried an interest rate between 5% and 8.5%, while interest rates on market loans approach 12%."
https://en.wikipedia.org/wiki/China%E2%80%93Pakistan_Economic_Corridor#Finance
Perry Kamath: from Wikipedia:
GDP growth for Pakistan:
4.0% (2014), 4.2% (2015),
4.71% (2016e), 5.2% (2017f)
https://en.wikipedia.org/wiki/Economy_of_Pakistan
Bani Hashim: India is invited to participate in CPEC. But India has declined to participate. Of course if India wants and does participate, it will be of good for regional economy and regional stability. Nobody is stopping India from getting involved.
Abhijit Gupta: is that it? All Chinese and China? I suggest you at least read the wiki on CPEC to see if it is only about Chinese and China.
Lol. Nice try Mr Fake. Tell me under whose teaching that Chinese were told to only know about making money? Spill it out, and don’t be shy. You are even allow to Google.
So now, constructing roads, railways and power plants means to be "over a barrel". At least this is not bombing and sanctioning that kill millions of people.
Devendra Jha India must reslove Kashmir issue before asking for any transit for her product to Central Asia. Pakistan conncting over billion peoples china to Middle East and Indian one billion can be connected only by Pakistan, if India Let Kashmiree peoples to use there right of self determination. no other way or high way Jha
Abhijit Gupta Gupta jee you come to visit Blochistan and see yourself why you donot same about Kashmir??
why hindu satans are so agitated if the project is so harmful for Pakistan
The jihad was created by the imperialist in Afghanistan and everywhere ..it is a colonial idea..the jihad in Islam is through knowledge as the quran says.
Anil Parmar and you guys have to allow beef eating in India.
Hopefully the roads and bridges are completed. The highways in NE India definitely are not!
Anil Parmar 100% agreed. I am scared to death if China become superpower while India does not. I want both to become powers for the sake of balance. Also, Pakistan can make millions in the long run by allowing both India and China to have trade through its terrority.
Miraj Khalid Siddiqui Wake up. Your country is taken by EAST CHINA COMPANY. Wake up. You owe 90 billion dollars. Nobody is jealous of you. Jealous of what? Are superpower or what. You are no more than a colony of EAST CHINA COMPANY.
With all due respect, Pakistan can go to hell. India will not let this happen in Indian territory occupied by Pakistan.
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..
Let me give another "one line" answer..46 BN DEBT 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..
Maria Younis Have you been to Kashmir? Also visit Balochistan of Pakistan and POK on the way.. and see the difference.. 😉