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ISLAMABAD: The Chinese company constructing a 720-MW hydroelectric power at Karot has sought help of Chairman CPEC Authority, Lt-General Asim Saleem Bajwa (retired), for resolution of taxation issues. This issue was raised by Wang Minsheng, Chief Executive Officer of Karot Power Company (Pvt.) Limited (KPCL), in a letter, copies of which have also been sent to Managing Director, PPIB, Chairman FBR and Chief Commissioner, Corporate Tax Office.

Officials claim that the Chinese investors who have already established power projects have expressed serious concerns against the concerned ministry and its attached departments on “undue” delay in their payments.

The KPCL is implementing 720MW Hydro-Electric PowerGeneration Complex under the policy for Power Generation Projects Year 2002. The company is importing equipment for the project on a regular basis.

According to the CEO, as company’s income tax is exempted pursuant to clause (132) of part I of second schedule to the Income Tax Ordinance 2001 read withsection 9.1 of the GoP IA, the company has been applying to the Federal Board of Revenue (FBR) for exemption certificates from paying advance income tax on imports separately for each bill of lading. However, company is facing serious issues in obtaining exemption certificates from FBR.

The company claims that it applied for the exemption from collection of advance tax from its 96th batch of shipment on April 20, 2021 under applicable taxation laws. Initially, the application was put on hold by FBR due to non-availability of log-in IDs of newly appointed officers in charge.

Power projects under CPEC: PD asked to resolve issues

Later, after 36 days of filing of application, Commissioner (Enforcement and Collection), Inland Revenue, rejected the application on May 26, 2021, on following grounds: “The documents provided by the taxpayer and the report of the officers are in conflict since the setting up and actual functioning of this power generation plant is still vague and no outright evidence could be provided to its setting up or completion as such, hence it apparently is hit by the latest amendment in clause 132, therefore, the company is not entitled to exemption under section 148, read with clause 132 of part-l of second schedule of the Income Tax Ordinance, 2001. Therefore, this application for exemption is rejected.”

The CEO of the company stated that the basis of rejection is incorrect because the latest amendment pertains to power generation project where Letter of Intent (LoI) was issued or agreement was signed with Government after June 30, 2021.

The provision of amendment is reproduced below for reference: “Provided further that no exemption under this clause shall be available to persons, who enter into agreement or to whom letter of intent is issued by Federal or Provincial Government for setting up an electric power generation project in Pakistan after the 30th day of June 2021.”

The Chinese company has also claimed that exemption has been withdrawn for only those projects for which a Letter of Intent is issued or an agreement with the Federal or Provincial Government is signed after June 30, 2021. It does not affect those projects with which the Government has already signed an agreement or to whom a LoI has been issued prior to June 30, 2021, such as KPCL, where the agreement is already signed, Financial Close achieved and Project is now at advance stage of installation and commissioning of important machinery.

Income Tax Amendment Bill 2021: Several exemptions under CPEC proposed to withdraw: expert

The COE noted that aggrieved by the “incorrect” interpretation of latest amendment by Commissioner, the Company filed revision application to Chief Commissioner. Meanwhile, Company was constrained to pay around Rs8 million as Advance Income Tax for 96th and 97th shipments as its revision application was pending decision by Chief Commissioner, who later decided the matter of the said amendment in tax laws in favour of the company, holding it as entitled to exemption as its letter of intent as well as agreement with the Federal Government are both signed prior to June 30, 2021. Furthermore, the Company was informed that exemption orders will only be granted for HS Codes falling in part 1 and part 2 of 12th Schedule of the Ordinance. Subsequent to the order of Chief Commissioner and in light of directions on HS Codes, the Company applied for exemption orders for its 5 shipments (98-1, 98-2, 98-3, 98-4 and 99) which were all duly approved by Commissioner, confirming that confusion in interpretation of new amendment stands resolved.

However, on July 28, 2021, the same Commissioner and her team, who issued five shipments on July 8, 2021 rejected exemption application for shipment number 100, 101 and 102 which were clearly falling in exemption-allowable HS Codes. The rejection of applications without giving any “compelling and reasonable justification” clearly shows mal-intention on their part.

The company says that all three shipments are already at Karachi Port since many days, but it is unable to get clearance in absence of exemption orders and has to bear not just the demurrage cost but also suffer the significant delay in project completion having national level importance. The company has sought intervention of from Chairman CPEC Authority to resolve this issue once and for all, on an urgent basis, as shipment exemptions are being delayed due to FBR’s administrative issues, “incorrect” interpretation of laws and late response from concerned officers.

Copyright Business Recorder, 2021

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