The current standoff between the Independent Power Producers (IPPs) and the federal government on nonpayment of overdue amount is likely to continue till announcement of federal budget 2017-18 as Finance Ministry has stopped releasing subsidy for the power sector, well-informed sources told Business Recorder. IPPs are again meeting with a team of Private Power & Infrastructure Board (PPIB) led by its Managing Director, Shah Jahan Mirza on Wednesday who claims that he has no authority to make any commitment regarding payment sans Water and Power Ministry's approval.
An insider toldBusiness Recorder that the IPPs are unlikely to approach international court of arbitration against non- payment of billions of rupees overdue by the CPPA-G and that the government will not pay any further amount to clear the stock of circular debt with the objective of containing fiscal deficit during 2016-17, adding that this situation will persist for a further few months.
PPIB had been requested to share its talking points with the IPP representatives so that they could prepare their response; however, PPIB did not share the agenda for tomorrow's meeting with the IPPs. Ministry of Water and Power recently raised a Rs 30 billion commercial loan from private banks in the name of CCPA-G for partial payment to the IPPs which served sovereign guarantee notices to the GoP for nonpayment of an overdue amount of Rs 52 billion. IPPs are paying sales tax of Rs 4 billion to Rs 4.5 billion to the Federal Board of Revenue (FBR) on annual basis.
Sales tax on furnace oil was increased from 17 per cent to 20 per cent from October 1, 2015. However, sales tax on output ie on sale of electricity remained at 17 per cent and no corresponding change was made. Lower output tax and higher input tax has resulted in accumulation of huge amounts of sales tax refundable amounts with FBR. This issue was discussed many times with concerned departments. However, no solution to the problem has come up till now.
According to sources, Hubco and Hubco Narowal sales tax refund which was Rs 458.45 million as per a return filed for September 2015 increased to Rs 3.8665 billion by January 2017, AES(Pakgen, Rs 724 million from Rs 50 million, AES(lalpir) Rs 957.64 million from zero, KEL, Rs 77.40 million from nill, AGL Power, Rs 36.80 million from Rs 3.41 million, Atlas Power Rs 366.6 million from Rs 17.39 million, Nishat Power Rs 290.36 million from Rs 103.3 million, Nishat Chunian Rs 475.45 million from Rs 75.53 million, Liberty Tech Rs 411.73 million from Rs 100.92 million. This implies that total sales tax refunds of RFO-fired IPPs as per their returns filed for January 2017 have increased to Rs 7.2068 billion from Rs 809.8 million. Likewise, sales tax issue of four IPPs ie Halmore, Orient, Saphire and Saif operating on High Speed Diesel (HSD), is as important as furnace oil-fired IPPs.
IPPs are not paying any income tax under the exemption available to the IPPs under the provisions of the Income Tax Ordinance 2001. Similarly, concessionary rate of 7.5 percent withholding tax is applicable on payment of dividend by the IPPs. As the IPPs are exempt from income tax, their income is not chargeable to tax. On the other hand, there is no exemption of sales tax to the IPPs. IPPs are claiming input tax but paying sales tax on supply of electricity. The net payment of sales tax comes to around Rs 4 billion to Rs 4.5 billion every year.
Referring to the existing sales tax collection procedure from IPPs, sources said that in case of generation, transmission, distribution and supply of electricity by IPPs, the responsibility to collect sales tax shall be of the person making the supply, and the value shall be the price of electricity including all charges, surcharges excluding the amount of late payment surcharge, rents, commissions and all duties and taxes whether local, Provincial or Federal.
The value of supply of electricity is considered for calculation of sales tax. Under the sales tax regime governing IPPs, the value of supply shall be the amount received by such IPP on account of Energy Purchase Price only and any amount in excess of Energy Purchase Price received on account of Capacity Purchase Price, Energy Price Premium, Excess Bonus, Supplemental Charges, etc, shall not be deemed as a component of the value of supply.
About return filing, the due date for the purpose of filing monthly sales tax return and for payment of sales tax shall be the 25th of the month following the month to which the sales tax invoice relates.
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