Karachi, August 11, 2024 – In a move that is likely to raise eyebrows, the Federal Board of Revenue (FBR) has extended tax concessions worth a staggering Rs 41 billion to the power sector for the tax year 2024.
Official data reveals that a substantial portion of this tax break, amounting to Rs 30.25 billion, has been granted in the form of income tax credit to electric power generation projects. This credit is applicable to projects established in Pakistan on or after July 1, 1988, subject to specific conditions outlined in Clause 132 of Part I of the Second Schedule of the Income Tax Ordinance, 2001.
Furthermore, the FBR has extended tax concessions worth Rs 10.75 billion under the sales tax laws. This benefit is available on machinery, equipment, and spare parts used for the initial installation, expansion, or modernization of power generation projects fueled by hydel, oil, gas, coal, nuclear, or renewable energy sources. Importantly, this concession extends to projects that entered into implementation agreements with the government before January 15, 2022.
The power sector, particularly Independent Power Producers (IPPs), has long been a subject of debate due to the generous incentives it enjoys, including substantial capacity charge payments. The additional tax concessions of Rs 41 billion underscore the significant financial support extended to these companies.
Critics argue that such substantial tax breaks to the power sector come at the expense of the broader taxpayer and could contribute to the country’s fiscal challenges. They contend that the government should prioritize alternative methods to support the energy sector while ensuring a fair distribution of the tax burden.
As the country grapples with economic difficulties, the rationale behind these tax concessions is likely to face scrutiny. The government may be called upon to justify the policy decision and demonstrate its alignment with broader economic objectives.
