The Central Board of Revenue (CBR) has assured Chinese investors concessions in duties and taxes on the import of plant and machinery for establishing coal-based 600-megawatt power plants in Sindh.
The Shenhua Group, China is investing millions of dollars to develop Thar coalfields for thermal power generation. It will provide a cheap alternate source of energy to Pakistan.
Sources told this scribe here on Thursday that a four-member delegation of Shenhua Group held a day-long meeting with the Member Direct Taxes Vakeel Ahmed Khan, Member Sales Tax Shahid Ahmed and Member Customs Muhammad Ramzan Bhatti seeking clarification on issues relating to duties/taxes on the import of plant/machinery for this purpose.
The company is engaged in preparing project feasibility, which will be finalised taking into account the existing taxation structure in Pakistan.
The tax managers responded to various queries pertaining to taxes on the power generation machinery, income earned in Pakistan, GST on electricity and other related issues in the light of Sales Tax Act, 1990, Income Tax Ordinance 2001, Custom Act and Pakistan Customs Tariff (PCT) including SROs issued from time to time.
The tax authorities highlighted the key features of the Pakistan economy, potential for trade and investment and explained in detail the favourable investment packages including tax concessions offered by the government in different sectors.
The tax officials told Chinese delegation that minimum custom duty at the rate of 5 percent would be applicable on the import of power generation machinery under the concessionary SRO.438(I)/2001.
Clarifying various issues relating to sales tax, tax officials said that under SRO.987(I)99 of August 30, 1999, exemption of sales tax is available on the import of plant and machinery operated by power to be used for the manufacture of taxable goods, apparatus/appliances, including metering/testing apparatus adapted for use in conjunction with the machinery and mechanical and electrical control and transmission gear for use in conjunction with machinery.
The CBR has informed the company that sales tax will not be applicable on in house production of goods like coal, whereas sales tax is applicable on the sale of coal.
The CBR also briefed the delegation on applicability of sales tax on power generation under special procedure.
The tax officials explained to the representatives of the company that income tax would be applicable on the income generated in Pakistan. However, exemption available under the Second Schedule of the Income Tax Ordinance 2001 will be applicable to the project as applied in case of other power producing companies.
Moreover, other issues relating to Income Tax Ordinance 2001 were clarified to the company.
On the issue of temporary import of machinery, the CBR has informed the delegation that under "Drawback (Same State Goods) Rules" notified as per SRO.450(I)/2001, the importer is required to pay 1/5th of duty at the time of clearance and shall furnish a bank guarantee valid for not less than five years for an amount equivalent to 4/5th of leviable duty plus additional surcharge at 14 percent per annum and in case such machinery is required to be retained for further period, the importer will, before completion of each one year from the date of importation, pay in cash further 1/5th of duty and other taxes including additional surcharge and may get his guarantee reduced accordingly.
The government of Pakistan is optimistic that 7300 million tons coal reserves of Thar and Lakhra have rich potentials for power generation, crude oil production and chemicals plants, with the assistance of China.
The Shenhua Group will be responsible for investment, construction and operation, while the Pakistani side will provide project-site and necessary infrastructure.
The government of Pakistan has already identified a specific area at Thar, in South-eastern Part of Sindh to be handed over to Chinese Company for the power generation.
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