THURSDAY FEBRUARY 19: Recovering taxes: government likely to seize bank accounts of IPPs, Discos

ISLAMABAD: Federal government is likely to seize banks accounts of Independent Power Producers (IPPs) and power Distribution Companies (Discos) to recover due taxes after Finance Minister, Senator Ishaq Dar gives approval, well informed sources told Business Recorder. This decision was taken at a meeting of Cabinet Committee on Energy (CCE) held under the chairmanship of Prime Minister, Nawaz Sharif on February 10, 2015.
The sources said, Prime Minister was informed that FBR has claims of billions of rupees against Discos and IPPs but they are unwilling to pay. CCE discussed payments issue of IPPs and Discos in detail and decided that the Finance Minister would look into the issue of seizing bank accounts of Discos and IPPs by the Federal Board of Revenue.On February 13, 2014, Economic Co-ordination Committee (ECC) of the Cabinet's decision on extension in exemption of power companies from income tax on Purchase Price of Electricity (PPE) created confusion in the power sector after FBR directed banks to attach accounts of Discos. The sources said a one-year extension in exemption had been granted to Discos, but the decision conveyed to them was different from what they heard in the meeting.
Last year, ECC was informed that the power tariffs of the (Gencos, Discos and NTDCL etc) were not cost compatible. At the time of corporatisation, it was rational to pass on all exemptions available to Wapda to the corporate entities to keep the taxation system on a smooth footing. These entities were allowed income tax exemptions from their creation to their privatisation on notification of companies' tariff. However, all the exemptions under Section-53, Second Schedule, were withdrawn and companies were also made liable to pay a minimum tax under Clause-113 of the Ordinance.
Ministry of Water and Power maintained that NTDC and Discos transfer electric power while charging wheeling charges and distribution margin. Therefore, it was not appropriate to include the purchase price of electricity in the turnover. In this context, FBR issued S.R.O.171 (1)2008 adding Clause-5 of Part-3 of Second Schedule to Income Tax Ordinance-2000, stating: "Where the corporatized entities of Pakistan Water and Power Development Authority (Discos) and NTDC are required to pay minimum tax under Section - 113, the purchase price of electricity shall be excluded from the turnover liable to minimum tax up to the tax year 2013".
According to documents, the SRO was issued when NTDC and Discos transfer the same electricity by charging wheeling charges and a distribution margin. Therefore, the real turnover of the companies was restricted to wheeling charges and distribution margin, respectively, and the price of electricity is ostensibly taken into account for accounting purposes only. However, if the price of electricity is subjected to minimum tax, the corporatized entities of Wapda will be burdened with a multiple taxation resulting in undue discrimination between the entities and the companies independent to determining their margin of profit on the whole of their turnover. Moreover, such multiple taxation will not only undermine the financial viability of the corporatized entities of Wapda but will also ultimately result in higher cost of power which would adversely affect the economic growth up to the date of the privatisation of corporatized entities of Wapda The sources further stated that IPPs are also to pay huge taxes due to which permission has also been sought to seize their bank accounts to deduct payment from their accounts directly.