Ministry of Power has approached Economic Coordination Committee (ECC) of the Cabinet for release of billions of rupees of refunds stuck with Federal Board of Revenue (FBR) due to which Discos are facing cash flow issues, well informed sources told Business Recorder.
Owing to several issues, financial position of the power sector remains under pressure leading to non-availability of required cash flow to meet the energy requirements/generation. The situation has been further complicated by the field formation officers of FBR, including practice of attachment of bank accounts of Distribution Companies on disputed issues leading to litigation in various cases. As a result, refund claims have been stuck with the Tax Authorities since many years, exacerbating the situation further regarding cash flow of the power sector. The major issues are as under:-
Sales Tax issues are as follows; (i) levy of Sales Tax on subsidy granted by GOP to DISCOs; and disallowance of input tax credit against transmission and line losses; (ii) payment of Sales Tax on collection basis rather than on accrual basis; (iii) demand to charge Sales Tax on supply to AJ&K consumers on fixed rate and Domestic Consumers of FATA and; (iv) chargeability of Sales Tax on Capacity Purchase Price in case of CPPAG. Income Tax Issue- extension in period for exclusion of PPE (Purchase Price of Electricity) through SRO 171(1)/2008 of February 21, 2008 upto date of privatization of the corporatized entities of WAPDA and CPPA, or to exempt turnover of DISCOs and Central Power Purchasing Agency, Guarantee(CPPA-G) Ltd. by insertion in clause (11A) of Part IV of the Second Schedule to the ITO, 2001.
The sources said a series of meetings was held from time to time between the Ministry of Water & Power and Consultants with FBR. In respect of Sales Tax, FBR is of the opinion that the following issues are to be placed before ECC for resolution: (i) levy of Sales Tax on subsidy granted by GOP to DISCOs; (ii) disallowance of input tax credit against transmission and line losses; (iii) payment of Sales Tax on collection basis rather than on accrual basis and ;(iv) demand to charge Sales Tax on supply to AJ&K consumers on fixed rate and Domestic Consumers of FATA.
According to sources, extension in period for exclusion of PPE (Purchase Price of Electricity) through SRO 171(1)/2008 dated 21 February 2008 upto date of privatization of the corporatized entities of WAPDA and CPPA, or to exempt turnover of DISCOs and CPPA (G) by insertion in clause (11A) of Part IV of the Second Schedule to the ITO, 2001.
DISCOs at their own level litigated the tax issues in Appellate Tribunals and got relief.
The sources said DISCOs have separate registrations with Sales Tax department; some DISCOs have to file Sales Tax returns with refunds (refunds being stuck at various levels with the tax department) and others with liability. Therefore, it is proposed that appropriate modifications be made so as to facilitate consolidated Sales Tax returns and discharge of netted liability. This will help reduce cash flow issues for the power sector in future. A concept paper has been shared with FBR.
Power Ministry has sought resolution of following issues; (i) power sector subsidy provided by the Federal or Provincial government is not liable to Sales Tax. Ministry of Finance also supports the stance of non-chargeability of Sales Tax on subsidy granted by Federal or Provincial government whereas FBR disagrees with the aforesaid stance; (ii) Sales Tax to be levied and collected during a tax period shall be on cash collection basis and not on accrual basis, by amending rule 14 of chapter 3 of Special Procedure Rules, 2007. During the years 2000-2006 tax was being paid on collection basis and a single return was filed through the forum of PEPCO. In case tax is required to be paid on accrual basis, DISCOs shall be liable to pay sales tax on behalf of such consumers who are not paying their Electricity bills.
Input Sales Tax related to Transmission & Distribution losses is not to be disallowed by field tax staff and extension to be granted in period for exclusion of PPE (Purchase Price of Electricity) through SRO 171(1)/2008 dated 21 February 2008, upto date of privatization of the corporatized entities of WAPDA and CPPA by appropriate notification by FBR or exempt turnover of EX-WDISCOs and CPPA (G) by insertion in clause (11A) of Part 1V of the Second Schedule to the ITO, 2001;
It has further been suggested that Special Procedure Rules of 2007, particularly Rules 12 and 14, may be modified to provide consolidated return after netting to be filed on behalf of 10 government-owned DISCOs by PEPCO and electricity supplies to AJ&K and domestic consumers of FATA to be notified as "zero-rated" supplies by FBR, to be adjusted in the consolidated account. -MUSHTAQ GHUMMAN
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