Government readies tax incentives to draw mining investors

The government has drafted a fiscal incentive package for copper and gold mining under the proposed National Mineral Policy 2026 and intends to put it before foreign investors at the Pakistan Minerals Investment Forum on November 12 and 13. The measures still need clearance from the Finance Division.

TechJuice and ProPakistani both reported that the package was built on a model by consultancy Wood Mackenzie and covers reserves the government estimates at $8 trillion. It combines tax reductions, exemptions and deferred payments intended to improve the economics of mining projects.

ProPakistani reported that the Petroleum Division has asked the Finance Division to prioritise the package. The proposals went to the Finance Division during this year's budget process but no comprehensive programme was introduced then. Sources said the policy document was ready while the missing fiscal package could limit its ability to attract investment.

Its largest item is a 30-year exemption from general sales tax on imported and locally purchased goods and services used in exploration and development, running until commercial production begins. The government is also weighing whether to keep the exemption after production starts, particularly for export-oriented projects where input sales tax may stay unadjusted.

Import duties on capital goods and project equipment would be waived during exploration, development and construction. ProPakistani reported that withholding tax on local goods and services would fall to 4 per cent and 8 per cent respectively, with payment deferred until production begins.

Under the model, corporate income tax would be replaced by a 1 per cent presumptive tax on export proceeds, with a 0.5 per cent development surcharge alongside it. Wood Mackenzie's analysis identified corporate income tax treatment as the biggest single factor in an investor's internal rate of return.

The package also proposes a 30-year exemption from super tax, a 15-year exemption from withholding tax on dividends paid after commercial production begins, and possible exemption of inter-corporate dividends inside mining structures to stop tax cascading.

Exploration losses could be carried forward indefinitely, and losses from unsuccessful exploration could be set against successful projects in the same group, subject to safeguards, ProPakistani reported. Depreciation allowances could be carried forward for 10 years after production starts, with accelerated depreciation of up to 100 per cent and the standard rate raised from 15 per cent to 30 per cent.

Wood Mackenzie has proposed fiscal stability clauses locking in the tax terms in force when a concession or agreement is awarded. The framework would broadly follow the protections the oil and gas sector has and would align mining, where appropriate, with the Fifth Schedule of the Income Tax Ordinance, 2001. The consultancy said stability matters because mine development takes years and investment decisions rest on long-term assumptions about tax.