The federal government has asked the provinces to adopt a uniform tax policy for granting sales tax exemption to energy projects under China-Pakistan Economic Corridor (CPEC) specifically from provincial general sales tax (PGST).
Sources told Business Recorder here on Friday that the issue of sales tax exemption to energy projects by provinces under the CPEC was discussed during the last meeting on tax issues of the CPEC energy project after finalization of the standing operating procedure (SOP) from Federal Board of Revenue (FBR). The said meeting was held to resolve the tax issues relating to investment in energy sector in the CPEC under the chairmanship of secretary Ministry of Planning, Development and Reform. The secretary emphasized that there should be a standardized policy regarding the tax exemption in the CPEC projects to ensure maximum active investment. Moreover, a unified policy by all provinces will enhance investor's confidence. The project director CPEC informed the participants that no clause was mentioned related to payment of provincial general sales tax (PGST) in the memorandum of understanding (MoU) /agreements of CPEC projects.
The representative of Private Power and Infrastructure Board (PPIB), Director (Finance & Policy) Chaudhry Safeer Ahmed informed that in 2002, a policy for power generation was formalized, wherein tax exemption was approved to power sector investment by Council of Common Interests (CCI). The secretary planning directed representative of the government of Punjab that matter relating to PGST tax exemption of Karot Power Project should be expedited in the light of CCI decision. In response, the representative of Punjab government Commissioner, Punjab Revenue Authority (PRA) Imran Hayee Khan stated that 2002 Policy for Power Generation was approved before 18th Amendment and now the decision is collective responsibility of provincial governments. Meanwhile, the PPIB representative informed that a summary on the exemption of GST to power project was to be moved by the Planning and Development Department (P&D), Punjab, for approval by chief minister Punjab.
Later, the representative of the government of Punjab confirmed that Punjab Revenue Authority has implemented 5 percent reduced PGST on power projects and Planning & Development Department (P & D), Punjab, is in the process of moving the case for tax exemption. The representative of the PPIB informed that the Sindh government has already implemented total exemption on PGST on energy projects. While, the representative of Azad Jammu and Kashmir (AJK) government stated that the government of AJK has not provided PGST exemption to Chinese companies as revenue through taxes is the main source for the AJK government.
Responding to this, the representative from PPIB stated that SMBR AJK already committed in the meeting with M/o W&P that they will adopt similar policy as adopted by the government of Punjab. In this regard, the secretary planning directed AS (Finance) government of AJK Ghulam Murtaza Mughal to consult the competent authority of AJK for expediting the decision on the concerned matter.
Sources said that the representative of government of Gilgit-Baltistan stated that the decision relating to implementing the PGST comes under the authority of the GB Council. The chair directed PD CPEC to formally move a note to the GB Council for taking approval for tax exemption as per the other provincial government. The representative of the government of Khyber Pakhtunkhwa stated that the exemption of PGST is still under process and will be finalised soon.
The FBR representative informed that there is a blanket exemption on the import of plant and equipment, which was promulgated after cabinet approval, while GST on services is a matter of provincial government. The secretary planning directed the CPEC Secretariat to take input from all stakeholders regarding the exemption being offered and later move a summary to the cabinet for implementing a standardized policy for the tax exemption on CPEC projects.
The FBR representative informed that the standard operating procedure (SOP) to handle the CPEC tax related matters is still under process and will be formalized soon. In reply, the chair directed Chief (Automation & Sales Tax), FBR Abdul Hameed Memon to expedite the process and formalize the SOP within 30 days and progress be updated accordingly. The secretary planning directed the project director CPEC to ask Chinese Embassy to sensitize the Chinese companies that they should approach the government agencies rather than resorting to litigation in order to resolve any dispute.