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Print Print 2023-05-07

Import items: AEDB seeks ST exemption for ARE projects

  • Govt plans to develop large-scale solar PV projects for substitution of expensive thermal power generation of approximately 6000-MW capacity
Published May 7, 2023

ISLAMABAD: Alternative Energy Development Board (AEDB) has sought exemption from Sales Tax on import of machinery, equipment, and spares for Alternative and Renewable Energy (ARE) projects and imposition of income tax at a fix rate on such projects, sources close to CEO AEDB told Business Recorder.

The Government has approved framework guidelines for fast-track solar PV initiatives 2022 for fast-track deployment of solar PV in order to reduce the impact of prevailing high prices of imported fossil fuels in the international markets resulting in high electricity tariffs and drain of precious foreign exchange.

Under the said initiatives, the Government has planned to develop large-scale solar PV projects for substitution of expensive thermal power generation of approximately 6000-MW capacity. The Framework Guidelines provide several fiscal and financial incentives to IPPs. Section 2.1.2(xiv) of the Framework Guidelines states that: “(xiv) all machinery, equipment and other related goods and materials required for deployment of solar PV projects shall be exempted from all import related duties and taxes. If required necessary amendments in the relevant laws will be initiated by FBR.”

Solarisation of PM House, MPO: 10pc of bid price: one-time adjustment approved by AEDB

Furthermore, Section 2.1.2(xv) of the Framework Guidelines states that: (v) profits and gains derived from sale of electricity by an IPP from an electric power generation project shall be subject to 15% income tax for the term of the project.”

Chief Executive Officer, AEDB, Shah Jahan Mirza noted that the competitive bidding for the first 600-MVW solar PV project under the said Framework Guidelines has already been initiated by AEDB. The last date for submission of bids for the said project is May 8, 2023.

According to him, the bids have been called against a benchmark/ ceiling tariff that has been determined National Electric Power Regulatory Authority (Nepra) by considering the provisions of the Framework Guidelines including the provision pertaining to sales tax exemption and income tax.

AEDB, in a letter to Power Division, has explained that exemptions on sales tax are also available to IPPs through Alternative and Renewable Energy Policies 2019 and 2006 (“ARE Policies”) duly approved by the concerned forums, i.e., Council of Common Interests (CCI) and Economic Coordination Committee (ECC) respectively. However, the sales tax exemption on imports of machinery, equipment and spares for Alternative and Renewable Energy Projects has been withdrawn after January 15, 2022.

Furthermore, the income tax exemption has also been withdrawn through amendments in the Income Tax Ordinance 2001 through Finance (Supplementary) Act, 2022, and now such projects are being subject to a normal corporate tax rate that is higher than the concessionary rate stipulated in Framework Guidelines.

AEDB has also highlighted that the withdrawal of sales tax exemptions on import of machinery and equipment’s and income tax exemptions will be to the detriment of the development of indigenous clean and green energy in the country and targets set by GoP for increasing share of ARE to 20% by 2025 and 30% by 2030 under ARE Policy 2019 and addition of cheap solar PV capacity on a fast track basis will have adverse financial impact on ARE projects resulting in increase in tariffs of such projects thereby undermining GoP’s efforts to bring down the average cost of electricity. Foregoing in view and considering the fact that the imposition of sales tax and income tax on ARE based projects will create hindrance in achieving the higher shares of clean ARE and reducing the average basket price of electricity, as envisaged by the GoP, AEDB has proposed that the matter for: (i) allowing sales tax exemptions on import of machinery, equipment and spares for ARE projects and (ii) imposition of income tax on ARE projects at a reduced fix rate of 15% may be taken up Ministry of Finance and FBR for amendment in the relevant legislations to make them consistent with the Framework Guidelines.

Copyright Business Recorder, 2023

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