Taxes, surcharges: War of words between textile industry, Power Division continues

The war of words between the textile industry and Power Division remains in full swing on the imposition of taxes, surcharges and recovery of positive fuel price impact. In a recent letter to the Minister for Petroleum and Power, Omar Ayub Khan, All Pakistan Textile Mills Association (APTMA) has asserted it is unfair that the Power Division is penalizing the exporting sectors for their own shortcomings.

On January 13, 2020, Power Division, through a letter sent by a Section Officer, to CEO PITC stated that the zero rated industry would only be charged 7.5 cents/kWh tariff and that Financial Cost Surcharge, Neelum-Jhelum Surcharge, taxes, fixed charges and positive fuel adjustment will be charged to the zero rated industry.

However, the export oriented industry registered a strong protest with the federal government at all levels, requesting that the decision be withdrawn immediately, but the Power Division refused to give more concessions to the export-oriented sector except electricity tariff of 7.5 cents per unit.

However, it was communicated that the above decision may be implemented forthwith for the purposes of recovery of arrears on account of the above items through easy 12 month installments. APTMA claims that the Discos have started billing the so-called arrears in 12 equal installments which have effectively doubled the additional illegal surcharges on top of 7.5 cents/kWh.

"These are closed and past transactions, over a year old where goods have been made, shipped, sold and accounts have been closed. It is highly unreasonable to expect the industry to pay anything above 7.5 cents/kWh from January 2019 .The 7.5 cents all-inclusive tariff was committed by the Prime Minister, approved by the ECC/Cabinet and stated very clearly and categorically on numerous occasions by various Government office bearers," said Shahid Sattar, Executive Director, APTMA, in his letter to the Minister.

Goods that were sold were cost at this rate and as a result the industry managed to increase volumes by over 30 percent despite severe global slowdown. Had this 7.5 cents/kWh not been assumed exports would have decreased substantially?

Aptma further stated that industry just cannot bear these additional illegal backdated charges which will result in closures, bankruptcies and widespread unemployment. Industry shifted from other cheaper sources of energy to grid electricity based on the assurances given by the state.

"It is extremely regrettable that the Power Division has shifted its stance and is bent upon nullifying all the progress in exports and industrialization made over the past eighteen months," he continued.

Textile industry argued that the additional illegal charge on industry is without any doubt the fault of the Power Division. The Power Division, in the summary to the ECC of the Cabinet on October 24, 2018 wherein approval of 7.5 cents per unit all in tariff was obtained stated: "Power Division/DISCOs will reduce on-going losses and improve fresh recoveries for which a target of Rs. 60 billion is set for the current financial year 2018-2019. In addition, recovery of past dues to the tune of Rs80 billion will also be ensured during CFY, to off-set the impact of industrial support package."

However, despite written submission by Power Division no subsidy was budgeted for maintaining the all in 7.5 cents/kWh tariff for the exporting sectors. Consequently, when Power Division failed to make the improvements committed and the circular debt started to increase, it went to the Finance Division seeking a subsidy for the difference, which refused to accept the request.

ECC/Cabinet decisions clarified earlier through letters of February 8 and March 29 2018: "I am directed to state that the issue of financial component surcharge (FC), Neelum Jhelum Surcharge (NJ), taxes, fixed charges and positive fuel adjustment was discussed in the ECC in its meeting of January 29, 2019.

The ECC had clarified that zero rated industry would be charged at 7.5 cents/kWh tariff only and all the other elements would not be charged to the zero rated industry but would be a part of the subsidy claim to be picked up by GoP.

"The explanations now being given by the Power Division are misleading in the extreme given the clarifications; rather the Power Division is penalizing the exporting sectors for their own shortcomings," Sattar maintained.

Textile sector has requested the Power Division to reconsider the decision as backing out of the notified and clarified decision will result in a total loss of confidence in Government commitments or policies.