Government faces tough questions on 2013 debt settlement

Coming out clean on the issue of payment of Rs 480 billion to the power sector for settlement of circular debt in 2013 seems to be a can of worms for the government, as officials of the Ministry of Water and Power Wednesday failed to satisfy a parliamentary panel on questions of pre-audit and taxes. A sub-committee of Senate Standing Committee on Finance, which was constituted to look into issue of the payment of Rs 480 billion to power sector, met here with Mohsin Aziz in the chair and asked tough questions from the Ministry of Water and Power, Finance Ministry and Federal Board of Revenue (FBR) regarding hasty payment as well as exemption of sale tax and refund of withholding tax.
The Ministry of Water and Power's justification that the payment was made without pre-audit because of an emergency situation, was not accepted by the committee and it upheld the observations of audit. No pre-audit was conducted because payment of circular debt was made on an emergency basis owing to a 12-hour-long electricity load shedding and its impact on the GDP growth by 2 percent.
The committee chairman and member Senator Kamil Ali Agha did not agree to the Ministry of Water and Power's justification and remarked, "Load shedding has been going on in the country since 2010 and how this was treated on an emergency basis." Emergency means something very sudden and unexpected such as earthquake or other natural calamity, the committee said inquiring from a representative of Auditor General of Pakistan (AGP) how much time was required to conduct the pre-audit.
"Audit of Rs 480 billion would have maximum taken three days if all the supporting documents were provided," the AGP official responded. A representative of State Bank of Pakistan (SBP) on the issue of pre-audit said, "The regulator has nothing to do with auditing process." The Finance Division stated that it sanctioned the payment after the authorisation of the Economic Co-ordination Committee of the Cabinet. Joint Secretary Ministry of Water and Power, Zargham Eshaq Khan, said that IPPs have filed as many as 13 litigations in the international court against the government over non-payment of surcharge on late payment while the government is contesting the litigations for payment of liquidity damages towards IPPs on violation of the contract.
Member Inland Revenue (IR) Policy, Rahmatullah Wazir, said that Federal Board of Revenue in order to ascertain payment of sales tax on supply of electricity against which circular debt accrued, wrote letters and subsequent reminders to Ministry of Water and Power during the last four months to get information relating to details of supplies and the relevant period; however, no response has been received so far.
He said that as per FBR's record, 29 IPPs have shown taxable supply by charging sales tax in their monthly sales tax returns for the period from July 2011 to June 2016 to NTDC and WAPDA. The total value of supply shown by the IPPs is Rs 2.8 trillion with sales tax of Rs 466 and input adjustment claim of Rs 450 billion.
"We need a Rs 480 billion break-up to verify the sales tax paid by each IPP and so far FBR has not conducted audit of the IPPs in this regard. On the basis of returns filed by the IPPs, these IPPs have claimed that the amount of sales tax has been paid but the FBR has to cross-verify whether there is any amount against any component," he said.