Fast-track solar PV projects by Arab countries: FBR asked to amend sales tax, income tax laws

ISLAMABAD: The Private Power & Infrastructure Board (PPIB) has asked Federal Board of Revenue (FBR) to amend Sales Tax Act, 1990, and Income Tax Ordinance, 2001, enabling timely development of the planned fast track solar PV projects by Arab countries, well informed sources told Business Recorder.

According to PPIB, in order to ensure the GOP’s policy objectives of energy security, affordability of electricity, environmental protection, and sustainable development, the GOP envisions to deploy solar power on a fast-track basis to eventually complement and/or substitute the expensive imported fossil fuels currently being used for power generation.

This not only will ensure savings of foreign reserves that are being incurred on import of expensive fossil fuels for power generation but will also help in provision of affordable electricity supply to consumers and pave the way for a sustainable power sector in the long run.

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For this purpose, the Federal Cabinet on October 18, 2022, approved the Framework Guidelines for Fast-Track Solar PV Initiatives 2022.

Pursuant to the Framework Guidelines, large-scale solar PV projects will be developed on IPP mode through competitive bidding or under G2G Framework. The GOP, through SIFC, has already received interest from the Governments of the Kingdom of Saudi Arabia (KSA), United Arab Emirates (UAE), and Kuwait for the development of RE projects in Pakistan under the G2G mode.

The government is actively working towards the development of solar PV projects utilizing the G2G mode.

The Framework Guidelines provide several fiscal and financial incentives to the IPPS. Section 2.1.2(xv) of the Framework Guidelines which states that: “(xiv) All machinery, equipment and other related goods and materials required for deployment of Solar PV projects shall be exempted from all import related duties and taxes. If required necessary amendments in the relevant laws will be initiated by FBR.”

Furthermore, Section 2.1.2(xv) of the Framework Guidelines states that: “(XV) Profits and gains derived from sale of electricity by an IPP from an electric power generation project shall be subject to 15% income tax for the term of the project.”

Managing Director PPIB, Shah Jahan Mirza, in his letter to Chairman FBR stated that the sales tax exemption on imports of machinery, equipment and spares for Alternative and Renewable Energy (ARE) projects, that are being processed after January 15, 2022, have been withdrawn under the Sales Tax Act, 2022.

Additionally, amendments to the Income Tax Ordinance 2001, made through the Finance (Supplementary) Act, 2022, have eliminated income tax exemptions. Consequently, these projects are now subject to both sales tax and the standard corporate income tax rate, currently set at 29%, which exceeds the concessionary rate outlined in the Framework,“ Mirza added.

PPIB maintains that to enable IPPs to benefit from the exemption on imports of machinery, equipment, and spares, as well as the reduced income tax rate of 15% on profits from solar PV projects, as approved by the Federal Cabinet under the Framework Guidelines, amendments to the relevant legislations are necessary.

After sharing the background of the case, PPIB requested FBR that considering the decision of the Federal Cabinet, necessary action be taken in the matter at the earliest for making the requisite amendments to the Sales Tax Act, 1990, and Income Tax Ordinance, 2001, enabling timely development of the planned fast track solar PV projects.

Copyright Business Recorder, 2024