Pakistan could not extend blanket tax exemptions to the $2.1 billion Matiari-Lahore transmission line project of the China-Pakistan Economic Corridor after tax authorities – for the first time – strongly resisted the move due to its adverse implications on the budget.
Due to fierce resistance by the Federal Board of Revenue (FBR), the Ministry of Water and Power had to withdraw its summary from the Economic Coordination Committee (ECC) of the Cabinet. The summary sought unprecedented level of tax exemptions that, if approved, could kill many local industries besides causing billions of rupees losses to the exchequer.
The $2.1 billion worth 660-kilovolt high-voltage direct-current (HVDC) Matiari-Lahore transmission line project is being developed by China Electric Power Equipment and Technology Company under CPEC. The Private Power Infrastructure Board (PPIB) had approved an Implementation Agreement and Transmission Services Agreement of the project and its submission to the ECC. The Ministry of Water and Power had sought exemptions from all types of income taxes, sales tax and custom duties including goods that are locally produced and can be supplied for completion of the transmission line project.
The ministry demanded that the profits and gains derived by a domestic company from transmission line project should be exempted from standard corporate income tax for a period of 10 years. The Matiari transmission line project should also be exempted from 1.25% minimum income tax and 17% alternate corporate income tax for a period of ten years.
Pakistan has already extended over $1.5 billion tax exemptions to various CPEC projects. This has affected FBR’s revenues besides putting the local industries at a disadvantageous position.
The federal government on 18th June breached the sanctity of the new budget when it lowered the WHT rate on banking transactions valued at over Rs50,000 by a third for non-filers of income tax returns. The ECC approved the reduction in WHT rates on banking transactions from 0.6% to 0.4%.
The government had initially decided to restore the original 0.6% WHT rate charged for transactions of over Rs50,000 a day, as it did not bring any change in section 236P of the Income Tax Ordinance through Finance Act 2017.
But before the applicability of the 0.6% rate, it again reduced the rate to 0.4% till September 30, highlighting inconsistency in taxation policies. This has undermined the sanctity of the budget that the National Assembly passed this week.
It also shows that the government is not serious about penalising non-filers, as the numbers of filers remained at only 1.2 million.
The ECC also extended the date for submission of subsidy claims regarding PM’s Package for Exporters till September 30, 2017 for shipments/exports made up to June 30, 2017. It also extended export period of wheat and wheat products beyond March 15, 2017 till August 31, 2017.