The Pakistan Senate, on Friday, debated about the newest development in Pakistan-Chinese economic relations, mainly, the controversial duty and tax exemption given to M/s China State Construction Engineering Corporation Limited. The Engineering Company has been exempted from paying federal excise duty and sales tax on imported construction material and goods to be used for the Karachi-Peshawar Motorway.
The debate in the Senate is just one of the instances of worries raised about the increasing role and power of China due to the China-Pakistan Economic Corridor (CPEC). While almost all in Pakistan would welcome economic development, many have raised concerns about the decreased agency of Pakistan in CPEC, as we continue to give huge concessions to China. Perhaps the biggest gift we gave was the allowance of trade in the Yuan currency by the State Bank, a move which could threaten the dollar.
The worries of the Senators are right. Friendship and cooperation with China is imperative, yet Pakistan must set some limits to protect its own interests as well. An exemption to the Chinese company is a favour that was bestowed to it, which local companies are not privy to, thus this move solidifies those who argue that the local economy stands at risk with the incoming of Chinese companies. An exemption to one Chinese company encourages other Chinese companies to expect or demand exemptions too, creating an unfair competition, and we may not be far off to a Chinese dominated market in Pakistan. Coupled with the fact that this exemption comes after 37% of the work was done, and that our exchequer could really need the taxed amount, the move of the Federal Board of Revenue (FBR) is worrisome.
The supportive senators argued that providing the exemption of reportedly Rs. 10 billion was necessary since the exemption eased the weight of Pakistan’s loans and this was a matter of concessional financing. While that is a good defence, it does shed light on the matter that CPEC is not running on Chinese finance, but through increased loans by Pakistan, which indicates that the rising levels of debt Pakistan can come under.
The supporters are right, CPEC is a game changer, but we need to learn how to play it right to reap the appropriate benefits. Despite Prime Minister Khaqan Abbasi’s dismissal of a Chinese debt trap, we need to look out for our exchequer, as this year has proved to be a bad year for Pakistan’s debt.