ISLAMABAD: Hub Power Company (Hubco) has urged the federal government not to withdraw income tax exemption available to it under the Implementation Agreement (IA).
In a letter to Secretary Power, Company’s CEO, Kamran Kamal referred to the provisions of the Implementation Agreement of August 3, 1992 which were amended from time to time entered into between the Government of Pakistan (GoP) and the Hub Power Company Limited.
Clause 18 of the IA is as follows: “the company shall not be liable to taxation in Pakistan on the income generated by the operation of the complex. The foregoing shall be subject to the second paragraph of the clause 5.3 and to paragraph 8 of part XII of schedule 2. Whereas serial number 2-part VI of the second schedule to the IA requires issuance of the statutory notifications giving effect to the provisions of clause 18 for a period of at least the term of this agreement.”
Kamran Kamal, in his letter further stated that clause 2 of the IA covers the issue of “commencement and duration” provided clause 3.2 shall continue in full force and effect unless or until it is terminated pursuant to the provisions of the agreement. Therefore, and consequent to the provisions of IA and reflected in part 1 of the second schedule in the Income Tax Ordinance, 2001 provides that incomes, or classes of income, or persons or classes of persons including persons mentioned in clause 132 shall be exempted from tax, subject to the conditions and to the extent specified thereunder. The said clause reads as follows: “(132) profits and gains derived by a taxpayer from an electric power generation project set up in Pakistan on or after the 1st day of July, 1988.”
Hubco seeks exemption from application of IFRS-9 on behalf of all IPPs
The CEO has claimed that by virtue of exemptions, Hubco is exempt from income tax on its income from power generation over the life of the project.
However, the Finance Bill 2022, announced on June 10, 2022 proposes to insert the following clause 132 “explanation - for the removal of doubt it is clarified that exemption under this clause shall continue to remain available to those persons to whom exemption under this clause was available on or before 30th of June, 2021 before insertion of sixth proviso vide Finance Act, 2021. Provided further that the exemption under this clause shall be available for the lifecycle of the project or 25 years from the date of commencement of commercial production whichever is earlier.”
The company understands that the proposed amendment in ITO, 2021, would make the exemption under section 132 available to Hubco no longer available once this proposed law is passed and will be subject to tax.
“We request the Ministry of Energy’s immediate intervention in ensuring that this concession, available to Hubco remains intact till the expiry of the IA,” he said adding that the company has legal and contractual rights, arising out of or in connection with the IA and all its right and remedies under the IA are expressively reserved.
Copyright Business Recorder, 2022
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