A coal mining company of Sindh is seeking fiscal incentives on the pattern of Independent Power Producer (IPP) from the Federal Board of Revenue (FBR) for Thar coal development project. Sources told Business Recorder here on Monday that the FBR has received a presentation from the company on the implementation of the fiscal incentives for Thar Coal Development.
According to the presentation, Coal Based Power Projects and Coal Mining Projects in Sindh shall have the same incentives, concessions, protections and security package as that available to IPPs. The first issue is related to the sales tax and advance income tax on import of dump trucks. Through SRO 268(1)/2015 dated April 8, 2015, custom duty has been exempted to all vehicles imported for site use. However, the respective entry in Sales Tax schedule has not been amended. This is a unique case since all imports made on concessionary duty rates are also exempted from sales tax. The required amendment can only be made through Finance Act and would be applied retrospectively. Since plant and machinery primarily comprising mining dump trucks are expected to be imported before June 2016 (potential impact of US $5million on project cost), temporary relief may be provided to Thar mining project.
The FBR has been requested to take a view that mining dump trucks are part of plant and machinery for the purpose of coal mining projects in Thar in concurrence with the decision of High Court. Further, the view is in line with the Economic Co-ordination Committee (ECC) of the Cabinet incentive package where all machinery and vehicles for Thar coal project were exempted. However, issues are being faced due to language and strict interpretation of relevant amendments in tax laws. The said clarification/view would enable to get exemption from sales tax and income tax on our recent import of dump truck.
Through the presentation, it is proposed that the concessional rate of duty for locally manufactured items is allowed for imports related to IPP projects exceeding US $50 million through the customs general order (CGO) No 04/2014. Similar benefit is required for Coal mining companies in Thar to ensure zero percent custom duty. Currently, dewatering equipment required for mining project may be exposed to locally manufacturing condition with an impact of US $6.5million on project cost. The issues in determination of locally manufactured requirement will also affect the project timelines. This can be allowed through Custom General Order and does not need to be included in the Finance Act. We request that Thar Coal and Energy Board (TCEB) should be the relevant authority (as MoWP is in case of IPPs) to determine the project entitled to this benefit. In case, the amendment cannot be made before Finance Act, temporary relief till June 2016 may be provided.
Sources said that the coal based power projects and coal mining projects in Sindh shall have the same incentives, concessions, protections and security package as that available to IPPs developed pursuant to Power Generation policy 2002 (as amended from time to time). By virtue of SRO 549(1)/2006, no input tax adjustment is allowable against output sales tax chargeable on supply of locally produced coal. Further, SRO 532(1)/2008 fixes the taxable value at Rs 1,000 per tonne of coal (increased to Rs 2,500 through SRO 491 of 2015). Normal input output mechanism of sales tax is being sought as available to IPPs.
In case, input output adjustment mechanism is not allowed, input tax paid on purchases would increase the cost of Thar Coal making it less competitive against imported coal and resulting in increase in power tariff.
Under Article 3 of the Agreement between GoP and GoPRC for energy projects CPEC, it has been agreed that tax exemption of interest income of Chinese commercial banks will be negotiated and incorporated in tax laws through amendments in Avoidance of Double Tax Treaty (ADTA). The draft protocol for amendment is being negotiated by Foreign Office to include all commercial banks of China participating in CPEC projects. The income tax on interest payments to foreign lenders will result in increase of coal and power tariff. Any delay will hamper project timelines as Chinese banks would require clarity before financial close. There is a need to expedite the amendment in ADTA. Amendment to include Thar based coal mining and coal based power projects, the presentation added.
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