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ISLAMABAD: Private Power & Infrastructure Board (PPIB) has requested Power Division to take up the issue of sales tax with Federal Board of Revenue (FBR) being charged from Pak-Matiari-Lahore Trans-mission Company Limited (PMLTC) on capacity/ capacity purchase price. PMLTC was incorporated in Pakistan on September 16, 2015 as a private limited company under the Companies Ordinance, 1984 and had its head office registered at Lahore.

The core business activity of PMLTC is to transmit 4000-MW of electricity from Matiari, Sindh to Lahore, Punjab. PMLTC started its commercial operation on September 1, 2021 prior to which project was in construction and testing phase.

Managing Director PPIB, Shah Jahan Mirza, in a letter to Additional Secetary-1, Shakeel Qadir Khan, has given the reference to second meeting of Standing Committee on Payments to IPPs held under his chairmanship on October 21, 2022 wherein the issue pertaining to PMLTC also came under discussion.

On July 7, 2022, the Company in a letter addressed to PPIB highlighted that in Finance Act 2022, the definition of “Goods” and “Supply” under the Sales Tax 1 990 has been expanded to define “production, transmission and distribution of electricity” as goods and supply thereby qualified for applicability of federal sales tax under the Sales Tax Act 1990.

It has also been noted by the Company that pursuant to amendment it is required to include output sales tax at the rate of 17 per cent in Transmission Service Charges (TSC) on monthly basis; however, the recovery of such output sales tax from NTDC would be delayed by at least 4-5 months. On the other hand, the Company will be required to deposit such 17 per cent output sales tax to FBR by 15th of every succeeding month which would create gap of cash flows that would translate into huge financial burden on the Company.

Capacity charge/purchase price: PMLTC seeks exemption from sales tax

Pursuant to the amendment in the Act, a meeting was held on August 31, 2022 under the chairmanship of MD PPIB and participated by representatives of NTDC, FBR, CPPA-G and Ministry of Planning, Development and Special Initiatives to deliberate on this matter. In the meeting, it was decided that NTDC through PPIB will share proposals on the issue with FBR.

Accordingly, PPIB, in its letter of September 9, 2022 shared the proposals with FBR, after which detailed deliberations and discussions have been held among NTDC, FBR and company, however, no response has been received from FBR yet. Subsequently, in the second meeting of Standing Committee this issue also came under discussion and it was highlighted by FBR that it will discuss the matter with its approving authority and if any amendment is required to be made in the Sales Tax 1990 for resolution of matter, it will share draft proposal with the Power Division following a request to prepare a draft summary for of the ECC.

According to MD, PPIB, the company has once again requested PPIB on October 25, 2022 to approach FBR for resolution of this issue, requesting Power Division to take up the matter with FBR in the light of second meeting of the Standing Committee for its early and amicable resolution.

PMLTC maintains that National Electric Power Regulatory Authority (Nepra) had approved a tariff and the PMLTC would raise invoice to National Transmission & Despatch Company Limited (NTDCL) according to the tariff approved by Nepra.

PMLTC will invoice NTDC based on fixed contracted capacity as per formula provided under Para 4 of Part II of Schedule 1 to the Transmission Service Agreement (TSA), i.e., 4,000-MW multiplied by tariff components. This methodology is equivalent to “capacity purchase price” applicable in case of Independent Power Producers (IPPs).

Chinese company referred to the already prevailing provisions on Capacity Purchase Price (CPP) for independent power producers (IPPs) under section 2(4( h) of the Act, 1990 reproduced as follows: (h) in case of supply of electricity by an independent power producer or Wapda the amount received on account of energy purchase price only; and the amount received on amount of capacity purchase price, energy purchase price premium, excess bonus, supplemental charges, etc., shall not be included in the value of supply.

According to the company, the tariff approved for PMLTC by NEPRA does not comprise any element other than the elements considered as “capacity purchase price,” for IPPs. Therefore, the invoices of PMLTC should fall within the ambit of “capacity purchase price,” and should be excluded from the value of supply.

The company further contended that the PMLTC would raise invoice for fixed contracted “Capacity Purchase Price” decided under the TSA Agreement; and the whole amount of contract should be considered as “Capacity Payments”. Therefore, keeping in view assertions, PMLTC has sought cooperation for amendment or making the necessary changes in the Act, 1990 by inserting an explanation to section 2(46) (h) of the Act, 1990.

Copyright Business Recorder, 2022

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