ISLAMABAD: Following the termination of contracts of five independent power producers (IPPs), negotiations with 16 other IPPs continue which may get finalised by the end of January, a senior official of the Power Division told a parliamentary body on Wednesday.
A special secretary of the Power Division, while briefing the Senate Standing Committee on National Food Security and Research, which met with Senator Syed Hussain Tariq in the chair, said that the termination of agreements with five IPPs would save Rs440 billion annually and more good news would come after finalisation of negotiation with 16 other IPPs. “The government has constituted a task =force for minimising the generation cost,” he said.
Kissan Ittehad (PKI) President Khalid Mehmood Khokhar told the committee that for the first time in the history of Pakistan, electricity tariff for agriculture is higher than the industry. A new motor tax and 17 percent GST have been imposed on the agriculture sector, he said.
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He said that the electricity rate for agricultural tube-wells is from Rs55 per unit to Rs60 per unit higher than industry. This electricity rate for agriculture must be reduced and brought lower than the industrial tariff, he demanded.
Contrary to the claims of Khokhar, the Power Division official told the panel that the basic tariff for agriculture stands at Rs42 per unit and industry at Rs47 per unit and all other taxes are imposed uniformly on all sectors.
To this, Khokhar told the committee that farmers have received no bill in which per unit cost of electricity is Rs42. He will present the electricity bills before the committee in this regard, he said.
The committee chairman said that there is a disparity between taxes on locally produced and imported cotton. There is an 18 percent sales tax on local cotton, while imported cotton is tax-free, he said, adding that this disparity is discouraging the cotton growers.
Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial said that the FBR will present the committee recommendation to the government regarding the imposition of tax on imported yarn (cotton). Once we discuss it with our partner International Monetary Fund (IMF) then we will finalise it, he said.
He also suggested the committee get the point of view of the Ministry of Commerce and the Ministry of Industries. The FBR chairman also said that the decision will have a negative impact on exports.
According to a brief submitted by the FBR before the committee local supplies to EFS units are taxable at the rate of 18 percent. However, when EFS units make exports they get refund of input tax, which is paid on the purchase of local cotton or yarn, it says.
The document says that since an EFS Unit, which is the buyer of the cotton, already knows that the tax paid on local purchases of cotton will be refundable; therefore, the EFS unit sets the price for purchase of the cotton, accordingly. The seller of the cotton; i.e., farmer/ ginner will not be affected by the sales tax amount as the buyer of the cotton (i.e., EFS) will not bear the burden of the sales tax amount and the same is refunded to him, it says.
It says the farmer/ ginner can negotiate the price exclusive of sales tax accordingly, as well. Moreover, the ginner will get input sales tax adjusted against its output tax so that will neither be included in the cost nor in the price of the cotton, it says, adding that on the other hand, if we exempt the local supply of cotton to the EFS units then the EFS unit will not be able to get the refund.
Ultimately, the cost of cotton inclusive of all input taxes paid at ginner level will be borne by the EFS unit, it says Now the seller (that is ginner) and the buyer (that is, EFS unit) will include his inputs into the cost and set the price accordingly. Farmer’s cotton will ultimately become costlier.
If local supply is made zero rated, it will create enforcement complexities. Local suppliers of cotton under zero-rated regime will claim bogus refund against the local supplies to EFS Units by pumping in flying invoices - a challenge FBR is generally struggling to control in the export sector, it says.
It says that Pakistan is under IMF programme; therefore, any proposed exemption needs its concurrence and subsequent incorporation in the next budget.
Copyright Business Recorder, 2025
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