Pakistan plans tax incentives for foreign mineral investors

The government is preparing a fiscal incentive package to attract foreign investment in Pakistan's copper and gold reserves, which are estimated at $8 trillion, The Express Tribune and ProPakistani reported. The package is to be part of the National Mineral Policy 2026.

The proposals were drawn up using a model by the consultancy Wood Mackenzie. The government plans to present them to foreign investors at the Pakistan Minerals Investment Forum (PMIF) on November 12 and 13.

The prime minister directed the Petroleum Division to develop and finalise the National Mineral Policy. Sources said the policy document is ready, but without a fiscal package it may not achieve its objectives. The Finance Division can approve fiscal packages, and the Petroleum Division has asked it to prioritise the proposals.

The incentives were submitted to the Finance Division during this year's budget process, but a comprehensive programme was not introduced at that time.

On sales tax, one proposal is a 30-year GST exemption on imports and local purchases of goods and services for mining projects during exploration and development until commercial production. Another would continue the exemption after production starts, because much mineral production is export-oriented. Import duties on capital goods and project equipment may be exempted during exploration, development and construction.

The Wood Mackenzie model proposes withholding tax rates of 4% on local goods and 8% on local services, deferred until mine production begins. A major proposal would replace corporate income tax with a 1% presumptive tax on export proceeds plus a 0.5% development surcharge. Wood Mackenzie identifies corporate income tax treatment as the largest driver of improvement in an investor's internal rate of return.

Other measures include a super tax exemption for at least 30 years and a 15-year exemption from withholding tax on dividends after commercial production. Inter-corporate dividends within mining project structures may also be exempted. Exploration losses could be carried forward perpetually, and losses from failed projects adjusted against successful ones in the same group, subject to safeguards.

On depreciation, the proposals allow carry-forward of the allowance for 10 years after commercial production and accelerated depreciation of up to 100%. The model raises the standard rate from 15% to 30%. Fiscal stability clauses would protect tax terms when a concession is awarded, as in oil and gas, and mining could be aligned with that sector's regime under the Fifth Schedule of the Income Tax Ordinance, 2001.