The Ministry of Finance has opposed tax exemptions to Wapda's corporatised entities, fearing that International Monetary Fund (IMF) would resist such a decision, sources in Central Board of Revenue (CBR) told Business Recorder. Background information suggested that the Economic Coordination Committee of the Cabinet (ECC) in its meeting in July 2001 had directed CBR to hold discussion with Wapda and resolve the issue for the early completion of corporatisation of power sector as agreed with the World Bank.
When the two parties did not find any reasonable solution of the dispute in two years, the case again went to ECC for consideration wherein it was decided that a meeting between Wapda Chairman and CBR Chairman be held to resolve the matter.
Consequently, a meeting was held in CBR on June 7 last, where Wapda Chairman informed that transfer of assets by Wapda to the corporatised entities had not been completed. Wapda has also not paid any amount to National Transmission and Dispatch Company (NTDC) because tariff has not been notified by the government.
Faisalabad Electric Supply Company (Fesco) and Peshawar Electric Supply Company (Pesco), both loss making entities, have not yet been able to commence their business because their tariff has yet to be notified.
Wapda chairman further said that ECC in its decision on January 05 1998 and January 13, 1998 had directed that the distribution companies, thermal generation companies and the transmission companies should be exempted from income tax, wealth tax and capital value tax during the process of their creation and for ensuing period of three years instead of granting exemption during the assessment 1998-99, 1999-2000 and 2000-2001. The decision of the ECC was not properly implemented, the Wapda chairman contended.
These entities are still in the process of creation. Accordingly, tax exemption available to these entities under clause 115C of Income Tax Ordinance, 1979, should be extended further.
The Secretary Privatisation pointed out that non-availability of tax exemption would seriously jeopardise the process of privatisation of these entities as the bids will be reduced by tax liability against them. Further tax burden will have to be passed on to the consumers because the tariff can not absorb any tax. This will be against the policy of the government to reduce electricity tariff.
Secretary Water and Power supported the views of Secretary Privatisation, saying that extension of exemption would facilitate privatisation process of these entities.
Responding to the views of the participants, CBR Chairman said that exemption was available to the coporatised entities of Wapda up to assessment year 2001 under clause 115C of part-I of the second schedule to the Income Tax Ordinance, 1979. This law has been repealed. No corresponding provision is now available in the new Income Ordinance, 2001. Thus, extension of previous clause is not possible. There will have to be a new exemption, which would be against international commitments. Member (TP & R) said that on an earlier occasion the IMF wanted to withdraw the exemption of Wapda, but CBR pleaded that exemption of Wapda should continue, as its entities would be taxable.
Asif Bajwa, Joint Secretary, Ministry of Finance supported this view and said that IMF would resist grant of any tax exemption. CBR has no intention to tax the entities but a way should be found to help Wapda. He also inquired that when transfer of assets has not been completed and tariff is still undecided, why returns of income of corporatised entities have been filed? The member finance Wapda said that returns of income were filed on the instructions of the consultants hired by these companies despite the fact that there is no turnover, nor assets and liabilities, of the entities.
Resolving the issue, the Member D.T, Vakil Ahmad Khan suggested that Wapda should bring all these facts to the knowledge of he C.I.T (Appeal) concerned so that he may have a clear picture of the issue and decide the appeals in true perspective of the facts of the case. Further action will be considered after the decision in appeal.
The Ministry of Water and Power has discussed the issue recently in an inter-ministerial meeting but CBR again refused to give exemption in taxes to Wapda's corporatised companies.