Keep experimenting, maybe something clicks. The previous governments had tried for years to boost IT sector through Software Technology Parks (STPs). Currently, around a dozen STPs are operational in Lahore, Islamabad/Rawalpindi and Karachi, under the hood of Pakistan Software Export Board (PSEB). These STPs provide several dozen IT companies with office space, ICT connectivity, backup power, etc. There is criticism from certain stakeholders that STPs are not fulfilling their potential in Pakistan.
The current government has come up with the idea of large-scale special technology zones (STZs) to achieve high growth in IT sector. An authority (STZA) has been set up for this purpose through a presidential ordinance dated December 2, 2020. While there is clear mission-overlap of envisaged STZs with STPs, it isn’t clear if the latter will come under supervision of STZA going forward.
The said “Special Technology Zones Authority Ordinance, 2020” offers several incentives for both ‘zone developers’ and ‘zone enterprises’. The entities that will undertake infrastructure development within an STZ will be exempted from all taxes on associated income and all custom duties and taxes on capital imports for ten years. Besides, they won’t have to pay GST on goods and services imports.
The ‘zone enterprises’ – the actual IT firms doing the work that the STZ is meant to promote – will enjoy the above-mentioned incentives, along with other incentives. These include tax exemption on dividends and capital gains coming out of venture-capital investments in the zone for a period of ten years, as well as a ten-year exemption on property-related taxes in the zone. It appears that previous incentives announced for the sector under different policies and frameworks will continue to apply in STZs.
About a week after the passage of the STZA Ordinance, the SBP on December 11 introduced special foreign exchange regulations for the STZs. Banks can open special foreign currency accounts for STZ zone entities. These accounts have to be funded by forex proceeds from abroad; they cannot take in anything from within Pakistan. The entities can make all kinds of foreign payments by using funds in their accounts. If they buy FX from market to make overseas payments, conventional regulations apply. Local payments can be made through such accounts but only in PKR, as FCY cash withdrawal is not allowed.
If initial reports are to be believed, getting STZs off the ground will be contingent on the STZA acquiring large parcels of land in major cities and then developing infrastructure on it. The first zone is to be built in Islamabad on a vast tract of land of about 150 acres. This approach can cause delays in land acquisition, utilities, basic facilites, etc. similar to those witnessed in the approval and functioning of industrial Special Economic Zones (SEZs). Don’t turn it into a real estate project.
There are uncertainties at this point. One, the Ordinance needs to be enacted as a law or it will lapse after initial fanfare. Two, the STZA, whose President is PM himself, has not advertised its long-term targets even after a month of being set up. Three, STZs may get a boost if Western tech firms set up shop, but most of them are already up in arms over latest social media rules. And lastly, delays in ratification of global Information Technology Agreement also send the wrong signal about seriousness.
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