‘Coal supply to power projects’: Sindh govt seeks removal of certain words from section 65F

ISLAMABAD: The government of Sindh has sought removal of words “supplying coal exclusively to power generation projects” from Section 65F enabling coal mining projects to explore new avenues of investment and expansion of Thar coal market.

In a letter to Minister for Power, Khurram Dastgir Khan, Minister for Energy Sindh, Imtiaz Ahmed Sheikh explained that under the current economic situation, the importance of Thar coal has been recognized by all stakeholders.

The government of Sindh is fully committed to ensuring the use of Thar coal across all sectors so that potential of Thar coal can be maximized.

Supply of Thar coal to industry: Tax amendments on the cards

As per the ECC-approved ‘Thar Incentive Package’, coal mining companies are eligible to claim 100% tax credit under section 65F of Income Tax Ordinance, 2001 (ITO). However, the said credit is restricted to sale of coal made to power generation projects only.

In this regard a request was earlier made to the FBR on January 25, 2023 to extend this credit to sale to non-power generating sectors as well.

The minister recommended that the words: “supplying coal exclusively to power generation projects” be removed from section 65F (1) (a) thereby enabling coal mining projects to explore new avenues of investment and expansion of Thar coal market as per vision of Prime Minister, Shahbaz Sharif.

Alternatively, clarification is issued to state that, in case of any sale to non-power projects, tax credit under section 65F will remain available up to the extent of profit attributable to supply to power generation projects.

In January this year, Sindh Government noted that SECMC is a JV of Government of Sindh and Engro Corp along with affiliates in which the Government of Sindh holds a major share of 54%. The SECMC is pioneer in opening of Thar coalfield to meet the energy requirement of Pakistan.

The current economic situation provides huge opportunity to the Government to explore different avenues for utilization of Thar coal to curtail the import bill and preserve the precious foreign reserves of the country.

To help overcome these challenging times for the country, coal mining projects intend to play their part by realizing potential of Thar Coal to its maximum and making coal reserves available to sectors such as cement manufacturing plants and coal gasification projects to utilize Thar coal in their manufacturing processes that is currently being run on imported coal/fuel.

Sindh government stated that currently, coal mining companies are eligible to claim 100% tax credit under section 65F of Income Tax Ordinance, 2001 against all forms of income taxes on income generated from supply of coal to power generation projects The relevant reference of section 85F of ITO is reproduced: following persons or incomes shall be allowed a tax credit equal to one hundred per cent of the tax payable under any provisions d this Ordinance including maximum alternate corporate tax and final taxes for the period to the extent upon fulfillment of conditions and subject to limitations: (i) persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects…“

Sindh government maintains that the term “exclusively to power generation projects (as highlighted) inhibits the extension of the aforementioned tax credit to supply of coal by coal-mining projects to non-power generation projects.”

In this regard, coal mining projects would require support from the authorities in shape of broadening of aforementioned tax credit to attract investments towards expansion of Thar coal project.

Sindh Government had recommended the phrase “supplying coal exclusively to power generation projects be removed from section 65F(1)(a). OR alternatively, clarification issued to state that, in case of sale to non-power projects, tax credit under section 65F will remain available up to the extent of profit attributable to supply to power generation projects.”

Accordingly, Sindh government requested for consideration of the proposed amendment as per law/rules/policy.

Copyright Business Recorder, 2023