7 power projects being set up under CPEC: Govt agrees to restore tax exemptions

ISLAMABAD: The government has agreed to restore tax exemptions of seven power projects being established under China-Pakistan Economic Corridor (CPEC), after recent meetings with Prime Minister Shahbaz Sharif and Minister for Planning, Development and Special Initiatives, Ahsan Iqbal, official sources told Business Recorder.

The government will make a formal announcement in the federal budget on June 10, 2022 to be presented by Finance Minister Dr Miftah Ismail. The PTI government, sources said, withdrew the tax incentives, in the light of agreement with the International Monetary Fund (IMF).

Chinese companies made hue and cry on withdrawal of incentives announced in the policy not only in Islamabad but also in Beijing.

According to PPIB, withdrawal of sales tax exemption has severely affected the progress of various power projects including CPEC projects, that have already executed their Security Package documents (A and PPA) and shall be compelled to procure additional financing in order to bridge the shortfall resulting from withdrawal of such exemption. Further, their respective IAs contain a provision that specifically allows them to import plant, machinery and equipment exempt from any sales tax as follows:

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Section 9.3(a): “nonetheless, the company and its contractors shall be entitled to import prior to the Commercial Operation Date (COD) without restriction and exempt from sales tax but the subject to the payment of the applicable five percent customs duty on value, determined under the laws of Pakistan, of imported plant, machinery and equipment not manufactured locally.”

The sources said, in the light of decision taken at a meeting in Ministry of Planning, Development and Special Initiatives, the following projects will be allowed exemption from imposition of sales tax on import of plant, machinery and equipment: (i) Kohala Hydro Company (Private) Limited 1,124 MW (date of IA execution 25, 2020; (ii) Azad Pattan (Private) limited 700.7 MW (date of IA execution July 6, 2020; (iii) SK Hydro( Private) Limited 870.25 MW (date of IA execution April 11, 2014); (iv) CHIC Pak Power Company (Pvt) Limited 300 MW (date of execution April 8, 2021); (v) Thal Nova Power Thar (Private) Limited 330 MW (date of IA execution November 24, 2017); (vi) Thar Energy Limited 330 MW (date of IA execution November 10, 2017); (vii) and Thar Coal Block-1 Power Generation Company (Private) Limited 1,320 MW (date of IA execution December 12, 2019.

The sources said, concession along with company shall also be available to primary contractors of the project upon fulfillment of the following conditions, namely: (a) the company has entered into Implementation Agreement with GoP; (b) the contractor shall submit a copy of the contract or agreement under which he intends to import the goods for the project; and (c) the chief executive or head of the contracting company shall certify that the imported goods are the projects bona fide requirement.

Copyright Business Recorder, 2022