Dr Pasha proposes withdrawal of tax exemptions to IPPs

Dr Hafiz A Pasha, a leading economist, has proposed an immediate withdrawal of tax exemptions to the Independent Power Producers (IPPs).

The government should also pay capacity charges only up to a certain percentage as the majority of the IPPs are owned by domestic business houses and they can easily understand the constraints faced by the government due to negative impact of coronavirus on the country's economy, Dr Pasha said while talking to Business Recorder on Wednesday.

He suggested that the government should renegotiate agreements with all IPPs without delay as the government is already late on this front. According to him, solutions are always transparent but it is the implementation where the government faces problems.

It may be noted that the Private Power & Infrastructure Board under the Ministry for Energy (power division) offers exemption from income tax, turnover rate tax and withholding tax on import to power generation by the IPPs. Also, any additional taxes and duties, over and above the tariff determined by the National Electric Power Regulatory Authority (NEPRA) are liable to be passed on to the power purchaser. The government has also extended exemption on withholding tax to shareholders on dividend for initial 30 years. Similarly, there is an exemption on withholding tax on the procurement of goods and services during project construction and operations. In addition, there is an exemption for 30 years on other levies including special excise duty, federal excise duty, Workers Profit Participation Fund (WPPF) and Workers Welfare Fund (WWF).

Dr Pasha said there have been cycles in the creation of extra capacity with peak rates of expansion in the early 80s due to commissioning of the Tarbela Dam and the mid-to-late 90s by the IPPs as part of the 1994 Power Policy. This policy offered very attractive incentives including capacity charges irrespective of the volume of sales, guaranteed rates of return on equity and lifetime exemption of IPP projects from the corporate income tax, he added.

According to him, the trough in the expansion cycle came in the tenure of Musharraf government. The rate of expansion in capacity in the first decade of the new millennium came down to only three percent. The military government preferred to intensively use the capacity available with the IPPs rather than promote further expansion of capacity. He said the tragedy is that in the presence of a strong federal government, under military rule, the decision was not taken to expand renewable energy, especially with dams. Consequently, he said, towards the end of the Musharraf rule in 2008 the country started experiencing frequent and widespread power outages once again. The share of hydel power in the generation capacity, he observed, has declined to only one-fourth from a peak of 45 percent after the commissioning of the Tarbela dam in the early 80s.