Export Processing Zone (EPZ)

Introduction:
A free trade zone (FTZ) or export processing zone (EPZ) is an area of a country
where some normal trade barriers such as tariffs and quotas are eliminated
and bureaucratic requirements are lowered in hopes of attracting new business
and foreign investments. It is a region where a group of countries has agreed to
reduce or eliminate trade barriers. Free trade zones can be defined as labor
intensive manufacturing centers that involve the import of raw materials or
components and the export of factory products.

Most FTZs are located in developing countries: Brazil, Indonesia, El

Salvador, China, the Philippines, Malaysia, Bangladesh, Pakistan, Mexico, Costa
Rica, Honduras, Guatemala, Kenya, and Madagascar have EPZ programs. In
1997, 93 countries had set up export processing zones (EPZs) employing 22.5
million people, and five years later, in 2003, EPZs in 116 countries employed 43
million people.

Corporations setting up in a zone may be given tax breaks as an incentive.

Usually, these zones are set up in underdeveloped parts of the host country; the
rationale is that the zones will attract employers and thus reduce poverty and
unemployment, and stimulate the area's economy. These zones are often used
by multinational corporations to set up factories to produce goods (such as
clothing or shoes).

Free trade zones in Latin America date back to the early decades of the 20th
century. The first free trade regulations in this region were enacted in Argentina
and Uruguay in the 1920s. The Latin American Free Trade Association (LAFTA)
was created in the 1960 Treaty of Montevideo
by Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay. However, the
rapid development of free trade zones across the region dates from the late
1960s and the early 1970s. Latin American Integration Association is a Latin
American trade integration association, based in Montevideo.
Free Trade Zones are also known as Special Economic Zones in some
countries. Special Economic Zones (SEZs) have been established in many
countries as testing grounds for the implementation of liberal market economy
principles. SEZs are viewed as instruments to enhance the acceptability and the
credibility of the transformation policies and to attract domestic and foreign
investment.

In 1999, there were 43 million people working in about 3000 FTZs spanning
116 countries producing clothes, shoes, sneakers, electronics, and toys. The
basic objectives of EPZs are to enhance foreign exchange earnings, develop
export-oriented industries and to generate employment opportunities.

The Export Processing Zones Authority of Pakistan (EPZA) seeks to promote the
efficient allocation of resources to maximize the benefits of
exporting goods around the world. The Authority provides
facilities to enable investors to attract foreign investment and
establish commercial enterprises, thereby creating new jobs
and fostering the growth of new technology industries for the
benefit of Pakistan. The government has empowered the
Authority to accomplish these goals through the organization of
external cooperation programs throughout Pakistan.

Under the Charter of the Export Processing Zones Authority of Pakistan, the
government has permitted the establishment of industries from a diverse
selection of technology areas within a Zone. Electronics, computer, and internet
based products and services can be produced and marketed. The continued
entry into these technology fields is a high priority for the future economic
development of Pakistan.

Commercial ventures can be established within the Zone for manufacturing

scientific equipment and instruments, engineering goods and services, and
supplies for the medical and healthcare industries.

The government has provided numerous incentives for investing in Pakistan’s

future. There is no limit imposed on the amount of capital that can be invested
and the Authority’s charter provides for the duty free export of finished goods and
articles of manufacture. Furthermore the national government has provided that
there be no tax imposed on the sales of input goods. Partners are entitled to sell
obsolete equipment in the domestic market for such goods within Pakistan.

Export Processing Zones in Pakistan

The Export Processing Zones Authority (EPZA) was established in 1980 by the
Government with the mandate to plan, develop, manage and operate export
processing zones in Pakistan. The Authority is an autonomous body and
functions under the Ministry of Industries, Production & Special Initiatives and is
administered by a Board of Directors headed by a Chairman. The Authority has
since been pursuing an extensive industrial program for setting up EP Zones in
the country.

The first EPZ was established in Karachi, the first phase of which is fully
developed & operational, 2nd Phase development is now almost complete and
investors have started construction of buildings in it. One large unit of
Y.K.K. Pakistan has started its operation in Phase II. Many other units are in the
pipeline.

EPZA has supported diverse ownership of export processing zones. There are
three joint venture zones located in Sialkot, Gujranwala and Risalpur.

Gwadar is the new EPZ location which is being developed near the newly
constructed Gwadar Port.

Five exclusive projects have also been granted the status of export processing
zones: These special EPZs are: Saindak Copper & Gold Mines, Duddar Lead
and Zinc Mines, Reko Diq Metal Mines, Tuwairqi Steel Mill and Khalifa Coastal
Oil Refinery.

Incentives
• Developed land on competitive rates for 20 years
• Duty-free import of machinery, equipment and materials
• Freedom from national import regulations
• Exchange control regulations of Pakistan not applicable
• Repatriation of capital and profits
• No sales tax on input goods including electricity/gas bills
• Duty-free vehicles allowed under certain conditions
 • Domestic market available to the extent of 20%. Exceptions may be
available
• Presumptive tax @ 1%
• Only EPZA is authorized to collect Presumptive Tax at the time of export
of goods which would be final tax liability
• Obsolete/old machiner can be sold in domestic market of Pakistan after
payment of applicable duties & taxes
• Defective goods/waste can be sold in domestic market after payment of
applicable duties, maximum upto 3% of total value
• EPZ units allowed to supply goods to Custom manufacturing bonds

Facilities
• One-window operation with simplified procedures
• All facilities like water, electricity, gas and telecommunications made
available
• Peaceful, secure, environmentally protected, and pollution-free work area
• Inter-unit transfer

Facilitation Desk: All authorization documents of entry and exit of goods from
the zones are issued by EPZA free of cost on the same day disposal basis.
These documents include:
Import gate pass
Incoming gate pass for subcontracting items
Entry gate pass for items of repair & maintenance
Gate passes for petty items
Authentication for export NOC
Export gate pass
Export gate pass for sample consignments
Out-going gate pass for subcontracting items
Exit gate pass for items of repair & maintenance
Exit/entry gate passes for same day return
Late shipment authorization
Authentication of documents of reverse subcontracting
Authentication for disposal of waste material in tariff area
Authentication of documents under Generalized System of Preferences (GSP)

Clearing/Forwarding Services: The EPZA has approved a panel of

clearing/forwarding agents holding valid Custom House Licenses and against
deposit of EPZA fee. A list of agents can be obtained from the EPZA office. They
offer a choice of selection to the investors.
Water, Electricity, Gas, Telephone Facilities at Site: The Authority processes all
applications for utilities’ connections at the factory premises. The Authority
facilitates in obtaining electricity, gas, telephone and water connections by
coordinating with utility agencies and keeps a follow-up on all matters relating to
billing or any other issue.

Construction Bye-laws: The factories in the required zones are to be

constructed in accordance with approved construction bye-laws. The investors
may hire their own contractors or can avail the services of contractors already
working in the EPZs.

Issuance of VIP Cards/Car Stickers to Investors: The VIP identification will

ensure to the investors a hassle-free movement in the zone.

Investors Not Required to File Income Tax Returns to IT Department: The

investor deposits Presumptive Tax to the Authority without having any interaction
with the IT Department. The Authority deposits this tax on behalf of the investors
to the IT Department against challan (invoice) which is provided to the investor.
This is the full and final tax liability and the investors are not required to file
Income Tax returns.

Generalized System of Preference Certificate: This certification is issued by

the Authority to eligible categories of units.

Authentication of Identity Cards to Labor: The EPZA authenticates the ID Cards

issued to the labor by zone units. Unauthorized entry is strictly prohibited into the
zone.

Offshore Banking Units: The Zone is exempted from all provisions of the
Foreign Exchange Regulations Act, 1947 (VII of 1947), State Bank of Pakistan
Act, 1956 (XXXIII of 1956) and Banking Companies Ordinance, 1962 (LVII of
1962).