The government of Pakistan People's Party (PPP) and its allies - facing serious and multiple allegations of corruption, inefficiency and bad governance - is continuously defending its financial crimes, tax evasion, plundering and wasting of taxpayers' money. In its 90-page judgement, the Supreme Court has declared the contracts of all rental power projects (RPPs) illegal and violative of the principle of transparency, fairness and open competition.
In paras 73 and 76 of the judgement, the Apex Court has also mentioned unprecedented tax concessions given to RPPs depriving the national exchequer of millions of rupees that should be retrieved by the National Accountability Bureau (NAB) and the Federal Board of Revenue (FBR).
It is simply shocking that on the one hand, the government, using the FBR as a tool, is destroying the local industry and trade through onerous tax laws and arbitrary actions, and on the other, giving the zero-tax regime to some "favourite" parties. It proves beyond any doubt that the present regime is not only involved in corruption but is also guilty of destroying the economic foundation of the country.
The Supreme Court has ruled that all the functionaries involved together with the sponsors who reaped financial benefits from the contracts are, prima facie, involved in corrupt practices and liable to civil and criminal actions. The judgement, in categorical terms, highlights how all the contracts defy the basic principles of transparency and open competition.
The Supreme Court before pronouncing the judgement facilitated the return of around Rs 8 billion from RPPs ordering payment of accrued interest of around Rs 450 million-this action of the Court was praised by the country's chief financial manager, Mr Abdul Hafeez Shaikh, as significant contributions towards the nearly-empty government treasury. But he and other financial managers - termed as technocrats - have never showed courage to resign and refrain from becoming part of a corrupt apparatus.
The government is now trying to portray this judgement as a set-back for its privatization policy. The facts speak otherwise. Firstly, in these contracts there was no element of privatization. Secondly, foreign direct investment has decreased over 75% due to lack of credibility and corrupt practices of the present regime. No country, even otherwise, would like to have this kind of investment where the regime mercilessly doles out the taxpayers' money - 14% advance against the contracted figure of 7% and that too when it was receiving well below 40% of what was agreed by RPPs. Under the PPP-led coalition government, the proceeds from the sale of public assets for the last two years have been zero - this testifies that their policies are not conducive even for privatisation.
In compliance with the of judgement of the Supreme Court, the NAB has reportedly issued notices to four RPPs under the NAO (National Accountability Ordinance) to refund the down payment along with the mark-up and also requested the Interior Ministry to place the names of 14 owners and Chief Executive Officers of RPPs on the Exit Control List (ECL). The NAB must also take action in the light of observations given by the Supreme Court in Para 73 and 76 of its judgement that read as under:
"73. It is to be seen that in view of the above discussion on the question of responsibility of making arrangements by the bidders and succeeding therein without altering the terms and conditions of the advertisement, 7% down payment on the total rental value of 36 to 60 months was subsequently increased to 14% for extending financial facilities, thus what would be its financial impact on the projects?
It may be noted that it was the responsibility of the sellers to finance the projects on their own and also to pay withholding tax, customs duty etc to the Government on the import of the machinery in accordance with law. However, the machinery was imported in the name of the GENCOs/Government. In addition to it, payment of 6% withholding tax was also deferred and in this manner, benefit of 14% + 6%=20% was given to the bidder without any legal justification.
Similarly, the machinery was allowed to be imported temporarily subject to getting exemption from payment of customs duty. All these conditions, if incorporated in the invitation for bids, would have encouraged more competition amongst the bidders to come forward and participate in the bidding process. Thus, in absence of competition between the bidders, public exchequer sustained huge losses and was likely to continue to suffer further losses in future, if curative measures are not adopted".
"76. According to the report of Federal Board of Revenue, the Ministry of Water and Power requested for the exemption of customs duty on temporary import of power generation plants and the request so made by WAPDA was approved by the Cabinet. Subsequently this concession was incorporated as part of the Financial Bill, 2008. Accordingly, the machinery for Power Generation Plants was exempted from whole of the customs duty by adding Entry No 49 in the exemption notification namely SRO No 567(1)/2006 dated 05.06.2006.
In view of above notification, Wapda has got cleared the following power plants on availing the concession of consumption on duty and taxes:
(1) Sammundri Rental Power Project (RPP).
(2) Reshma Rental Power Project (RPP).
(3) Gul Rental Power Project (RPP).
(4) Guddu Rental Power Project (RPP).
(5) Naudero-I Rental Power Project (RPP).
(6) Sahuwal Rental Power Project (RPP).
(7) Karkay Rental Power Project (RPP).
(8) Sheikhupura Rental Power Project (RPP) (re-exported).
(9) Bhikki Rental Power Project (RPP) (Re-exported).
As per summary, the amount to be paid on the above plants comes to approximately Rs 410,163,668/-, which includes customs duty, CED/FED as well as taxes. It has never been heard that in the business of providing motorcars/machinery, etc, on rent, the providers are extended the concession to the extent noted hereinabove. Not only the above concession, but as it has been noted during the reply of the arguments made on behalf of the above respondents that the Finance Minister due to non-providing of Standby Letter of Credit, unilaterally increased 7% down payment in the name of mobilisation advance".
In view of the above findings of the Apex Court, it is now imperative for the NAB and FBR to recover lost tax from the RPPs. It is obvious that so far, the above paragraphs have escaped the attention of either authority.
(The writers, tax lawyers and partners in HUZAIMA & IKRAM (Tax and Pakistan), are Adjunct Professors at Lahore University of Management Sciences)
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