The Federal Board of Revenue (FBR) has granted income tax exemptions totaling Rs27 billion during the tax year 2020 to power generation companies operating in Pakistan. These exemptions were extended to 73 companies, underlining the government’s efforts to support the energy sector.
Since 2001, power generation companies in Pakistan have been benefiting from significant income tax exemptions under the Income Tax Ordinance, 2001, with no sunset clause attached. These exemptions are provided under Clause 132 of Part 1 of the Second Schedule of the Income Tax Ordinance, 2001, which was established to promote investment in the country’s power generation sector.
The FBR has laid out specific conditions for companies to qualify for this exemption. According to the ordinance, profits and gains derived from electric power generation projects set up in Pakistan after July 1, 1988, are exempt from income tax, subject to the following conditions:
1. The project must be owned and managed by a company formed specifically for operating the power project. This company must be registered under the Companies Ordinance, 1984, and must have its registered office located within Pakistan.
2. The company must not have been formed by splitting up or restructuring an existing business. Additionally, no transfer of machinery or equipment from a previous business in operation before the commencement of the new project is allowed.
3. The exemption is available only to companies that are not majority-owned by the Federal Government, Provincial Government, or Local Government. Furthermore, these companies must not be controlled by any government authority at the federal, provincial, or local level.
The FBR clarified that these exemptions also apply to expansion projects of existing Independent Power Projects (IPPs) already in operation. This is part of the broader efforts to encourage investment and development within the energy sector, with the goal of meeting Pakistan’s growing energy needs.
Market analysts have noted that these tax exemptions have played a crucial role in incentivizing investment in Pakistan’s energy sector, which has faced challenges such as energy shortages and infrastructure issues. By granting exemptions to power generation companies, the government aims to promote the development of energy infrastructure and ensure a stable energy supply for the country.
The Rs27 billion in income tax exemptions for the 73 companies demonstrates the government’s commitment to fostering growth in the power generation sector and addressing Pakistan’s energy challenges.