20000127

IPPs may claim furnace oil ST adjustment: CBR

RECORDER REPORT

ISLAMABAD: The Central Board of Revenue has announced that independent power producers, including Hubco and Kapco, will be entitled to claim full input tax adjustment against the sales tax paid on purchase of furnace oil and other tax paid purchases for power supply.

This decision, however, will not apply to any "other person, including captive power projects" engaged in the production and supply of electricity, its said.

The Board has explained, through a Sales Tax General Order No 1/2000, on Wednesday that a question had arisen as to the value of the electricity supplied by IPPs to Wapda and KESC. The contract between Wapda or KESC and different IPPs envisage a tariff structure comprising a number of categories e g the consideration of money on account of energy purchase price (EPP), capacity purchase price (CPP), energy purchase price premium, excess energy bonus and supplemental charges (S C) etc.

The CBR says that the EPP is payable by Wapda KESC on account of purchase of "electrical energy" while the consideration received by IPPs on account of CPP is for net capacity of the plant which is to be paid during the contractual period. The payment of CPP etc is not related to the supply of electricity.

"The issue has been examined in the CBR and it is ruled that the value of supply of electricity by IPPs is the amount received on account of energy purchase price only. Therefore, any amount in excess of EPP received on account of captive purchase price, energy purchase price premium, excess bonus, supplemental charge etc is not to be included in the value of supply as defined in clause (46) of section 2 of the Sales Tax Act, 1990. However, the assessment of sales tax is to be done in accordance with the provision of sections 7,8 and all other relevant provisions of the Act, rules and notifications. The IPPs will be entitled to claim full input tax adjustment against the sales tax paid on purchase of furnace oil and other tax-paid purchases for making supply of electricity subject to the provisions of section 8 and the notifications issued thereunder."

The notification has further clarified that this ruling applies only to IPPs, including Hubco and Kapco, because of their peculiar arrangements with Wapda or KESC and is not applicable to any other person, including captive power projects, engaged in the production and supply of electricity.