KARACHI – The Sindh government and the Federal Board of Revenue (FBR) are at loggerheads over imposing Sales Tax and Federal Excise Duty on all coalfields, other than those in Thar, that are being exploited, Pakistan Today has reliably learnt.
The dispute has surfaced despite the cabinet’s Economic Coordination Committee (ECC) approving a fiscal incentive package for all coalfields in Sindh. “The FBR is insisting on bringing all of Sindh’s coalfields under the tax net, but Sindh’s authorities are of the view that Chinese and other international companies – currently employed in Badin’s coalfields – will pack up and abandon ship if the FBR continues with its ploy,” well-placed sources told Pakistan Today. “A Chinese company, M/S CMC, is working on the project of mining and power plant of 405 MW at Sonda-Jherruck.
They have already completed the feasibility, and have acquired the mining lease. The Chinese firm is currently under the process of completing their mine design. Imagine the setback if they leave,” sources said. On October 15, 2010, the ECC had approved a “fiscal incentive package” for the Thar coal mining project, which was recently approved by the Economic Coordination Committee (ECC) in a bid to attract Foreign Direct Investment (FDI) in the coal sector. The incentives provide 20 percent (dollar-based) internal rate of return (IRR) to firms that achieve financial closure before December 2015 for mining and power projects based on indigenous coal, and an additional half a percentage IRR i.e 20.5 percent for firms that close by or before December 31, 2014, sources told Pakistan Today.
A provision for zero-percent Customs duty was also announced on the import of coal mining equipments and machineries, including vehicle for site purpose, sources said, adding that withholding tax on dividends for the initial 30 years was exempted.
The incentive also offers exemption on withholding tax on procurement of goods and services during project construction and operations, including exemption for 30 years on other levies, including special excise duty, federal excise duty, WPPF and WWF, they explained. In addition to the aforementioned incentives, coal-based power and coal-mining projects in Sindh would have the same incentives, concessions, projections and security packages as the ones enjoyed by independent power producers (IPPs). The Thar Coal Energy Board (TCEB) would also function as coal-pricing agency.
In order to implement the incentive package, the Sindh Coal and Energy Development Department submitted comments to the Water and Power Ministry, vide letter No SO(TECH)C&EDD/4-11/10(IP) dated January 18, 2011. The FBR, on its end, argued that it was clear in the fiscal incentive package that the exemption was specifically in respect of Thar coal fields, which have been declared as a Special Economic Zone, and further, that nowhere was there any mention of a blanket exemption for all projects based on indigenous/local coal. Yet, official correspondence is not as lucid.
“Since [the matter] involves considerable revenue – whether sales tax or special excise duty – we may refer the matter to the Ministry of Water and Power to seek their opinion and comments in this regard, so that the FBR may take further action to endorse complete compliance of ECC decision in Case No ECC-153/13/2010 dated 15-10-2010,” the FBR had argued in a letter to Sindh. Even through the FBR’s communication, however, it cannot be inferred that fiscal incentives are restricted only for Thar Coalfields area, sources argued, adding that the FBR’s insistence will translate into adversely impacting projects in Badin, Sonda-Jherruck, Lakhra and East-Indus Area.
