The Federal Board of Revenue (FBR) has reportedly refused to grant special tax exemptions to Independent Transmission Company (ITC), declaring its interpretation of different tax clauses as `non-applicable', it was reliably learnt.
Well-informed sources told Business Recorder that PPIB has prepared a summary regarding Implementation Agreement (IA) and Transmission Services Agreement (TSA) under policy framework for private sector transmission line project, 2015.
According to FBR, profits and gains derived by (ITC) from transmission line projects will be exempted from corporate income tax for a period of 10 years from the date of establishment of the ITC or from the date of commencement of business, whichever is earlier.
Provisions of Section 113 and 113C of the Income Tax Ordinance 2001 (ITO-2001), regarding payment of minimum tax on turnover and payment of alternate corporate tax, respectively will not be applicable for a period of 10 years from the date of establishment of the ITC or from the date of commencement of business, whichever is earlier in respect of an IT deriving income from transmission line projects.
The tax collection agency further argued that provisions of Section 148 will not be applicable to an ITC engaged in transmission line projects on the import of plant and machinery and specialised vehicles for a period of 10 years from the date of establishment of the ITC or from the date of commencement of business, whichever is earlier.
FBR, in its comments on the proposal from PPIB said that under section 53 of ITO-2001, federal government can approve the grant of tax exemptions or concessions in only special circumstances such as immediate action for the purposes of national security, national disaster, national food security, emergency, protection of economic interest due to abnormal fluctuation in international commodity prices, development of backward areas and implementation of bilateral and multilateral agreements. Since such circumstances do not exist, the concession sought in the summary is outside the purview of section 53 of the Ordinance and consequently outside the scope of consideration by the ECC of the Cabinet.
Furthermore, existing tax exemptions in respect of power generation companies have been granted under clause (132) and (132B) of Part-I of 2nd Schedule to the ITO-2001 and hence no such precedence exists whereby a tax exemption is granted to a private independent transmission company.
According to the sources, FBR further maintained that the policy is to discourage new tax exemptions and is in a process of phasing out existing tax exemptions/concessions.
The company has already been exempted from duties and taxes on import of construction equipment machinery for transmission line project which may be re-exported by the ITC. It may be noted that under S. No 8(2) of Table-3 of Sixth Schedule to the Sales Tax Act, 1990, construction machinery, equipment and specialized vehicles, excluding passenger vehicles, imported on temporary basis are already exempted from the sales tax.
The Board has also stated that TSA envisages that the term "Tax" will not include any fee or charge payable to a public sector entity as consideration for goods or services provided by such public sector entity in relation to a commercial activity carried out by such PSE. The condition is not supported and the term "tax" will have the same meanings as is defined under various tax statutes of Pakistan.
Section 9.3 of Article-IX of the IA again calls for imposition of non-adjustable/non-refundable sales tax at 5 per cent on import of machinery, equipment and other capital goods if not exempted under the Sixth Schedule to the Sales Tax Act, 1990. Reiterating its earlier stance, FBR said that machinery and equipment meant for power transmission and grid stations, including under-construction projects, is already exempted from sales tax under the Sales Tax Act, 1990 subject to certain conditions. FRB said that extension of 5pc sales tax demanded 'through ArticIe-9 to machinery and equipment is not supported.
Commenting on the request of sales tax exemptions, FBR said that fiscal incentives for power sector transmission line projects, contained in Policy Framework for Private Sector Transmission Projects, 2015 proposes non-adjustable/non-refundable sales tax at 5pc on import of machinery, equipment and other capital goods if not exempted under the Sixth Schedule to the Safes Tax Act, 1990. FBR argued that machinery and equipment meant for power transmission are already exempted from sales tax subject to certain conditions, adding that further extension of the scope of exemption or grant of reduced rate at 5pc on import of machinery, equipment and other capital goods not covered by the said provision is not supported.
The sources said, PPIB, while elaborating its stance on tax exemptions said that government of Pakistan has announced the Policy Framework for private Sector Transmission Line Projects, 2015, to attract private sector investment for augmentation of transmission network in the country to transmit electricity from upcoming power projects to the load centres. The policy provides for standardised security package documents for transmission line projects, comprising Implementation Agreement (IA) and Transmission Services Agreement (TSA), which provide legal and contractual framework for the financial closing, engineering, procurement, construction, commissioning, operation, and maintenance on build-own-operate-and-transfer basis (BOOT) for a term of 25 years. To accomplish the task of preparing draft security package, which required detailed due diligence as per internationally acceptable standards for the bankability of coming transmission line projects, PPIB engaged services of an experienced international consultant, Thomas West Jr. of M/s Primus Energy Advisors, who had earlier drafted similar standardised security documents. Based on recommendations of consultants, draft TSA along with its salient features as finalised by National Transmission & Dispatch Company (NTDC) was put up for consideration, respectively.
The proposed drafts of the IA and the TSA have been designed to cater to the needs of the transmission line projects in the private sector. However, certain project-specific amendments would be inevitable during negotiations with the project companies provided the GoP obligation do not increase; moreover, certain changes may be required in compliance of the tariff approval or Nepra's directives. The IA and the TSA have been drafted after discussions with potential stakeholders in HVDC transmission lines so as to fairly balance the allocation of risk between the parties and to attract investment in the transmission line projects by the private sector.
PPIB has also argued that since operations and maintenance of transmission line has been agreed to be undertaken by NTDC through its subsidiary, pursuant to O&M agreement, and land is being provided by NTDC pursuant to Land Lease and Right of Way Agreement, certain financial and other risks are flowing there from having bearing on obligations of NTDC under the TSA and consequentially on the IA, therefore the salient features of both O&M Agreement and Land Lease and Right of Way Agreement are being submitted to the ECC.
The federal minister for water & power/chairman PPIB Board has granted anticipatory approval of the drafts of the IA & the TSA on behalf of the Board. The draft summary was circulated to the Ministry of Law & Justice, Ministry of Finance, Planning & Development Division, National Electric Power Regulatory Authority, FBR, and State Bank of Pakistan.
The sources said PPIB has sought ECC's nod on following recommendations: (i) standardised IA and TSA for transmission line projects under Policy Framework for Private Sector Transmission Line Projects, 2015; (ii) Board of PPIB and NTDC may be authorised to make and approve any project-specific amendments required in the Standardised IA and TSA, respectively, during negotiations provided GoP obligations or liabilities are not increased; and (iii) Board of PPIB and NTDC may further be authorised to make and approve any amendments in the approved IA and TSA, respectively, required to comply with Nepra's tariff determination, directives and/or approvals.
Comments
Comments are closed.