Concessionary tax rate will apply to coal imported exclusively for direct supply to NEPRA-licensed coal-fired Independent Power Producers.
ISLAMABAD: The Federal Board of Revenue (FBR) has issued a General Order prescribing the procedure and conditions for applying a minimum value addition tax of 1% on imported coal supplied to coal-fired Independent Power Producers (IPPs).
The order has been issued under clause (6) of the “Procedure and Conditions” contained in the Twelfth Schedule to the Sales Tax Act, 1990.
According to the FBR, the concessionary tax treatment will apply only to coal imported under Chapter 27 of the Pakistan Customs Tariff, provided the coal is imported exclusively for direct supply to eligible coal-fired IPPs.
Conditions for 1% tax
The FBR said importers must fulfil several conditions to qualify for the reduced minimum value addition tax:
• The importer must be registered under the Sales Tax Act, 1990.
• The imported coal must be intended exclusively for direct supply to a coal-fired IPP holding a generation licence issued by the National Electric Power Regulatory Authority (NEPRA).
• At the time of import, the importer must submit documentary evidence such as a purchase order, supply agreement, contract, or other proof showing that the coal is meant solely for direct supply to the eligible IPP.
• The importer must maintain complete records relating to both the import and subsequent direct supply of the coal and produce them whenever required by customs or inland revenue authorities.
• The importer must comply with all verification and audit requirements under the Sales Tax Act, 1990 and the relevant rules.
Customs verification
Under the General Order, the Collector of Customs may allow assessment of imported coal at the 1% minimum value addition tax on the basis of the documents provided by the importer.
However, customs authorities may subsequently verify compliance through post-clearance audits or in coordination with Inland Revenue officials.
Recovery of differential tax
The FBR warned that importers would be liable to pay the differential amount of minimum value addition tax, along with default surcharge and applicable penalties, if it is established that:
• The imported coal was supplied to any person other than a coal-fired IPP.
• The coal was not imported exclusively for direct supply to an eligible coal-fired IPP.
• Any of the prescribed conditions under the General Order were violated.
Key definitions
The order defines a Coal-Fired Independent Power Producer (IPP) as an independent power producer generating electricity from coal under a NEPRA-issued generation licence.
Direct supply is defined as the supply of imported coal by the importer directly to a coal-fired IPP without any intermediate sale, transfer or diversion.
The FBR added that words and expressions not specifically defined in the General Order will carry the meanings assigned to them under the Sales Tax Act, 1990, the Customs Act, 1969, and the rules framed thereunder.