Capacity charge/purchase price: PMLTC seeks exemption from sales tax

ISLAMABAD: Pak-Matiari-Lahore Transmission Company Limited (PMLTC) has sought exemption from chargeability of sales tax on capacity charge/ capacity purchase price.

PMLTC was incorporated in Pakistan on September 16, 2015 as a private limited company under the Companies Ordinance, 1984 and had its head office registered at Lahore. The core business activity of PMLTC is to transmit 4000-MW of electricity from Matiari, Sindh to Lahore, Punjab. PMLTC started its commercial operation on September 1, 2021 prior to which project was in construction and testing phase.

The company, in a letter to Managing Director PPIB, cited amendments which were made in Sales Tax Act, 1990 through Finance Act, 2022. In this regard, the production, transmission and distribution of electricity has been included in the “definition of goods” under section 2(12) of the Act, 1990.

Further, through Finance Act, 2022 the production, transmission and distribution of electricity has also been included in the definition of “supply” inserting a new clause “e” in section 2(33) of the Act, 1990. Both amendments are effective from July 1, 2022.

National Electric Power Regulatory Authority (Nepra) had approved a tariff; and the PMLTC would raise invoice to National Transmission & Despatch Company Limited (NTDCL) according to the tariff approved by Nepra.

PMLTC will invoice to NTDC based on fixed contracted capacity as per formula provided under Para 4 of Part II of Schedule 1 to the Transmission Service Agreement (TSA), i.e., 4,000-MW multiplied by tariff components. This methodology is equivalent to “capacity purchase price” applicable in case of Independent Power Producers (IPPs).

Chinese company referred to the already prevailing provisions on Capacity Purchase Price (CPP) for independent power producers (IPPs) under section 2(4( h) of the Act, 1990 reproduced as follows: (h) in case of supply of electricity by an independent power producer or Wapda the amount received on account of energy purchase price only; and the amount received on amount of capacity purchase price, energy purchase price premium, excess bonus, supplemental charges, etc., shall not be included in the value of supply.

According to the company, the tariff approved for PMLTC by NEPRA does not comprise any element other than the elements considered as “capacity purchase price,” for IPPs. Therefore, the invoices of PMLTC should fall within the ambit of “capacity purchase price,” and should be excluded from the value of supply.

The company further contended that the PMLTC would raise invoice for fixed contracted “Capacity Purchase Price” decided under the TSA Agreement; and the whole amount of contract should be considered as “Capacity Payments”. Therefore, keeping in view assertions, PMLTC has sought cooperation for amendment or making the necessary changes in the Act, 1990 by inserting an explanation to section 2(46) (h) of the Act, 1990 as follows “Explanation- it is clarified that the value of supply does not include the amount received by independent transmission companies on account of transmission of electricity on the basis of fixed capacity and supplemental charged and has never been chargeable to tax under the Act.” Or a new clause (j) may be inserted under section 2(46) of the Act i.e.;- (j) in case of transmission of electricity by electricity transmission companies, the amount received on account of transmission of electricity on the basis of fixed capacity and supplemental charges, etc., shall not be included in the value of supply.

Copyright Business Recorder, 2022