Anal­y­sis

Gov­ern­ment may seize bank ac­counts of IPPs, Dis­cos

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The Fed­eral gov­ern­ment is likely to seize banks ac­counts of In­de­pen­dent Power Pro­duc­ers (IPPs) and power Dis­tri­bu­tion Com­pa­nies (Dis­cos) to re­cover due taxes af­ter Fi­nance Min­is­ter, Se­na­tor Ishaq Dar gives ap­proval, well in­formed sources told Busi­ness Recorder. This de­ci­sion was taken at a meet­ing of Cabi­net Com­mit­tee on En­ergy (CCE) held un­der the chair­man­ship of Prime Min­is­ter, Nawaz Sharif on Fe­bru­ary 10, 2015.

The sources said, Prime Min­is­ter was in­formed that FBR has claims of bil­lions of ru­pees against Dis­cos and IPPs but they are un­will­ing to pay. CCE dis­cussed pay­ments is­sue of IPPs and Dis­cos in de­tail and de­cided that the Fi­nance Min­is­ter would look into the is­sue of seiz­ing bank ac­counts of Dis­cos and IPPs by the Fed­eral Board of Rev­enue.On Fe­bru­ary 13, 2014, Eco­nomic Co-or­di­na­tion Com­mit­tee (ECC) of the Cabi­net’s de­ci­sion on ex­ten­sion in ex­emp­tion of power com­pa­nies from in­come tax on Pur­chase Price of Elec­tric­ity (PPE) cre­ated con­fu­sion in the power sec­tor af­ter FBR di­rected banks to at­tach ac­counts of Dis­cos. The sources said a one-year ex­ten­sion in ex­emp­tion had been granted to Dis­cos, but the de­ci­sion con­veyed to them was dif­fer­ent from what they heard in the meet­ing.

Last year, ECC was in­formed that the power tar­iffs of the (Gen­cos, Dis­cos and NTDCL etc) were not cost com­pat­i­ble. At the time of cor­po­rati­sa­tion, it was ra­tio­nal to pass on all ex­emp­tions avail­able to Wapda to the cor­po­rate en­ti­ties to keep the tax­a­tion sys­tem on a smooth foot­ing. Th­ese en­ti­ties were al­lowed in­come tax ex­emp­tions from their cre­ation to their pri­vati­sa­tion on no­ti­fi­ca­tion of com­pa­nies’ tar­iff. How­ever, all the ex­emp­tions un­der Sec­tion-53, Sec­ond Sched­ule, were with­drawn and com­pa­nies were also made li­able to pay a min­i­mum tax un­der Clause-113 of the Or­di­nance.

Min­istry of Wa­ter and Power main­tained that NTDC and Dis­cos trans­fer elec­tric power while charg­ing wheel­ing charges and dis­tri­bu­tion mar­gin. There­fore, it was not ap­pro­pri­ate to in­clude the pur­chase price of elec­tric­ity in the turnover. In this con­text, FBR is­sued S.R.O.171 (1)2008 adding Clause-5 of Part-3 of Sec­ond Sched­ule to In­come Tax Or­di­nance2000, stat­ing: “Where the cor­po­ra­tized en­ti­ties of Pak­istan Wa­ter and Power Devel­op­ment Author­ity (Dis­cos) and NTDC are re­quired to pay min­i­mum tax un­der Sec­tion - 113, the pur­chase price of elec­tric­ity shall be ex­cluded from the turnover li­able to min­i­mum tax up to the tax year 2013”.

Ac­cord­ing to doc­u­ments, the SRO was is­sued when NTDC and Dis­cos trans­fer the same elec­tric­ity by charg­ing wheel­ing charges and a dis­tri­bu­tion mar­gin. There­fore, the real turnover of the com­pa­nies was re­stricted to wheel­ing charges and dis­tri­bu­tion mar­gin, re­spec­tively, and the price of elec­tric­ity is os­ten­si­bly taken into ac­count for ac­count­ing pur­poses only. How­ever, if the price of elec­tric­ity is sub­jected to min­i­mum tax, the cor­po­ra­tized en­ti­ties of Wapda will be bur­dened with a mul­ti­ple tax­a­tion re­sult­ing in un­due dis­crim­i­na­tion be­tween the en­ti­ties and the com­pa­nies in­de­pen­dent to de­ter­min­ing their mar­gin of profit on the whole of their turnover. More­over, such mul­ti­ple tax­a­tion will not only un­der­mine the fi­nan­cial viability of the cor­po­ra­tized en­ti­ties of Wapda but will also ul­ti­mately re­sult in higher cost of power which would ad­versely af­fect the eco­nomic growth up to the date of the pri­vati­sa­tion of cor­po­ra­tized en­ti­ties of Wapda The sources fur­ther stated that IPPs are also to pay huge taxes due to which per­mis­sion has also been sought to seize their bank ac­counts to deduct pay­ment from their ac­counts di­rectly.

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