ISLAMABAD -  Pakistan and China signed third protocol to the avoidance of double taxation agreement that would allow a Chinese bank and a state-owned investment fund to avail income tax exemption on interest income from loans for energy projects under China-Pakistan Economic Corridor (CPEC).

Federal Board of Revenue (FBR) Chairman Nisar Muhammad Khan and State Administration of Taxation (SAT) Commissioner Wang Jun has signed the agreement. PM’s Special Adviser on Revenue Haroon Akhtar Khan also witnessed the signing ceremony. Earlier, China had demanded to grant tax exemptions to its commercial banks on income they will earn by extending loans under the $46 billion CPEC projects in Pakistan. The agreement covers $34 billion of energy projects but China also wants similar tax benefits for $11 billion worth of infrastructure projects.

“Tax exemption of interest income accruing from commercial loans by ICBC (Industrial and Commercial Bank of China) and other Chinese commercial banks for projects identified under this agreement will be considered and negotiated under the processes and protocols for making amendments and modifications in the Avoidance of Double Taxation Agreement,” the CPEC documents stated.

The FBR official said that the agreement could result in revenue shortfall of $2billion over a period of 15 to 20 years. Earlier in past, both the countries signed for avoidance of double taxation and prevention of fiscal evasion with respect to taxes.

Speaking on the occasion, the PM’s special adviser shared his experiences in China and appreciated the way China has developed in such a short span of time. He welcomed the Chinese delegation to FBR and hoped that the two tax authorities will continue mutual cooperation in the area of taxation.

Earlier, in his opening remarks, the FBR chairman welcomed the Chinese delegation to FBR and underscored the significance of the CPEC for the people of both the countries. He emphasized that the tax administrations of both the countries should cooperate in various international commitments like Multilateral Convention on Mutual Administrative Assistance in Tax Matters, Base Erosion and Profit Shifting (BEPS) Framework and other international and OECD initiatives.

Wang highlighted various aspects of Pakistan-China friendship and appreciated the efforts of FBR and SAT to arrive at agreement on the Third Protocol to the Avoidance of Double Taxation Agreement. He was also of the view that FBR and SAT must open new vista for mutual cooperation in various areas, including capacity building of the human resource.