31 August, 2014 / Ziqa'ad 4, 1435

ECC likely to impose GST on hydropower

Published Mar 13, 2012 03:00am

The committee may also consider a proposal to compensate four IPPs because of recent disruption in gas supplies by amending agreements relating to force majeure clauses.  - File photo

ISLAMABAD: The Economic Coordination Committee of the cabinet is likely to approve on Tuesday a proposal to export over two million tons of wheat, impose 16 per cent general sales tax on hydropower produced by Wapda, clear Rs6.1 billion commercial loan of Pakistan Railways and consider a proposal to import urea for the coming Kharif season.

A meeting of the ECC, to be presided over by Finance Minister Dr Abdul Hafeez Shaikh, may also discuss financing arrangements for the Iran-Pakistan gas pipeline project for completing it by December 2014.

Iran has promised to provide $300 million for the pipeline to be built in Pakistan, but a written offer from Tehran is still awaited.

The meeting is expected to consider a proposal for a one-time tax-free import of some industrial products from India.

Sources told Dawn on Monday that there was a carryover stock of about 3.4 million tons of wheat from last season, while the new crop to be harvested from April 1 was likely to yield an additional 25 million tons.

Considering a domestic requirement of about 23 million tons for the year ahead, government agencies expect a surplus of more than five million tons, which will not only create storage problems and constrain the provincial governments from procuring fresh produce but also create a huge circular debt crisis for the banking industry.

The authorities are of the opinion that strategic reserves of about two million tons of wheat are sufficient for market intervention — one million tons to be kept with the federal agencies and a similar quantity to be shared with the provincial governments.

The ECC meeting will be briefed on the overall stock position and expected crop yield this season and will be requested to consider the proposal to provide subsidies for exports to replace the existing stock with fresh produce in view of the fact that lower international prices make Pakistan’s grain non-competitive.

On top of the surplus stocks, the recent increase in wheat support price by over 10 per cent announced by the centre has put the Punjab government in a quandary because of over Rs100 billion stuck in the wheat trade and fresh crop ready to be procured at Rs1,050 per 40kg.

The sources said the wheat trade was becoming a major political issue ahead of the next general election because the federal government had announced the higher support price without discussing it with chief ministers in the Council of Common Interests. The Punjab government has criticised the decision because it will have to offer the same price to its farmers.

The ECC will also consider a proposal for 16 per cent GST on hydropower generation. The issue was discussed at a previous ECC meeting but was deferred owing to the absence of Wapda chairman. The ECC had directed the Wapda chairman to attend the next meeting.

The issue emanates from an anomaly in the sale tax adjustment mechanism and Wapda’s accounting processes. While independent power producers (IPPs) invoice their sales to the Central Power Purchase Agency on variable energy purchase charges, Wapda’s similar invoices also include a two-part tariff — fixed charge and variable charge.

If Wapda charges output sales tax on the amount of total monthly invoice (both fixed and variable charges), there will be a huge output tax to be paid to the Federal Board of Revenue against a normal input (i.e. operation and maintenance of hydroelectric power) which is nearly five per cent of the total output tax, raising serious cash flow problems for Wapda. Therefore, Wapda wants application of sales tax only on variable charges.

The ECC may also approve a Rs6.1 billion loan for Railways to be raised by a consortium of commercial banks, led by the National Bank of Pakistan, for procurement of new locomotives. The ministry of finance will provide sovereign guarantee for securing principal and mark-up payments which can always be invoked in case of non-payment/short payment of instalments.

The ministry of railways will make a legal provision in its budget for the next five years for payment of instalments to the consortium and will ensure that railways’ assets are not sold till the clearance of the loan.

The committee may also consider a proposal to compensate four IPPs because of recent disruption in gas supplies by amending agreements relating to force majeure clauses.


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