Chinese power firm in Pakistan faces problems, delays in tax exemption

Karot Power Company Ltd (KPCL), a special purpose vehicle (SPV) executing the hydropower project on the Jhelum River on a build-own-operate-transfer (BOOT) basis with the Chinese power company said that it has been facing serious problems and delays in obtaining advance tax exemption orders at import stage from the Federal Board of Revenue (FBR) for the last few months.

In a letter to China-Pakistan Economic Corridor (CPEC) Authority chairman Asim Saleem Bajwa, the KPCL complained that the FBR authorities at the Karachi Port have rejected the firm's exemption application for its three shipments without giving any reason, reported Dawn.

The exemption application was rejected on July 28. "... (since the) company is unable to get clearance in (the) absence of (the) exemption orders (it) has to bear not just the demurrage costs but also suffer a significant delay in project completion," the letter read.

The company claimed that its income tax was exempted pursuant to clause 132 of Part-I of the second schedule to the Income Tax Ordinance 2001 as it is executing the project under the Power Policy of 2002, reported Dawn.

The 720-megawatt hydropower generation complex had a tax concession period of approximately 35 years, including a construction period of five years. It is being built by the state-owned China Three Gorges South Asia Investment Ltd -- an investment arm of China Three Gorges in South Asia.

As per the Chinese firm, this was not the first time that the company is facing delays in the issuance of exemption orders for its import shipments, reported Dawn.

Its application for one shipment in April this year was first 'put on hold' owing to the non-availability of login IDs of the newly appointed officers in charge. It was later rejected by the Commissioner (Enforcement and Collection, Inland Revenue) after 36 days of its filing at the end of May, citing the latest amendment to clause 132 of Part-I of the second schedule to the Income Tax Ordinance, 2001, reported Dawn.

Later, the Chief Commissioner reversed this order after the company filed a review petition, contending that the exemption is withdrawn only for projects for which a Letter of Intent (LoI) is issued, or an agreement with the federal or provincial government is signed after June 30, 2021.

The amendment, according to KPCL, does not affect projects that have already signed an agreement with the government or to whom an LoI has been issued prior to June 30, 2021.

In the case of KPCL the agreement is already signed and financial close achieved, and the project is now at an advanced stage of installation and commissioning of machinery, the KPCL review petition argued, seeking the reversal of the earlier decision against it, reported Dawn.

( With inputs from ANI )