1. IPPs RELATED LEGAL
PROVISIONS IN
INCOME TAX ORDINANCE, 2001
SALES TAX ACT, 1990
WPPF
WWF ORDINANCE
BY
SYED MUHAMMAD IJAZ, FCA, LLB
M Yousaf Adil Saleem & Co. a member
firm of Deloitte Touché Tohmatsu
3. Clause 132 Part I of 2nd Schedule
Profits and gains derived by a taxpayer from an electric power generation project set
up in Pakistan on or after the 1st day of July, 1988. The exemption under this
clause shall apply to such project which is-
a) not formed by the splitting up, or the reconstruction or reconstitution, of
a business already in existence or by transfer to a new business of any
machinery or plant used in a business which was being carried on in
Pakistan at any time before the commencement of the new business; and
b) owned by a company fifty per cent of whose shares are not held by the
Federal Government or Provincial Government or a 1[Local Government] or
which is not controlled by the Federal Government or a Provincial Government or
a [Local Government]:
c) Provided that the condition laid down in sub-clause (a) shall not apply to
the Hub Power Company Limited
[Provided further the exemption under this clause shall not apply to oil fired
power plants setup [between 22nd October, 2002 and 30th June, 2006]
but shall apply to Dual Fuel (Oil/Gas) power projects set up on or after the
first September, 2005]
Provided further that the exemption under this clause shall be available to
companies registered in Pakistan or Azad Jammu and Kashmir owning and
managing Hydel Power Projects, set up in Azad Jammu and Kashmir or
Pakistan.]
4. Clause 20 Part II of 2nd Schedule
The rates of tax as specified in clause (b)
of Division-III of Part-I of First Schedule
shall be reduced to 7.5% in case of
dividend declared or distributed on shares
of a company set up for power
generation.]
5. Provisions incorporated through
Finance Act, 2009
ACCELERATED DEPRECIATION TO ALTERNATE ENERGY
PROJECTS. [Section 23B, section 57 and Third Schedule]-
A new section 23A has been inserted whereby First Year Allowance
(FYA) at the rate of 90% of the cost of plant, machinery and
equipment has been allowed.
The plant, machinery and equipment has to be installed in Pakistan
by a company set up for the purpose of alternate energy power
generation.
The FYA will be allowed in lieu of initial allowance allowed u/s 23 in
respect of “eligible depreciation assets” put to use after July 01,
2009.
This has been done to encourage investment in this sector both by
residents and non-residents. The amendment has also been made in
section 57 to allow carry forward of losses for indefinite period.
6. Kot Addu shall continue to enjoy
exemption under clause 138
Companies qualifying for exemption u/c
132 of this schedule in respect of receipts
from the sale of electricity (still available)
The corporatized entities of Wapda so far
as they relate to their receipts on account
of Sales of electricity
7. The Legal Position
Section 23 read with 57 and third Schedule vs
clause 132 of Part II of 2nd Schedule
132 to applicable to power projects
It is not applicable to Oil fired Plants setup [between 22nd
October, 2002 and 30th June, 2006
shall apply to Dual Fuel (Oil/Gas) power projects set
up on or after the first September, 2005]
2nd Proviso vs the power plants-the legal position?
Other provisions i.e. Single Object of
memorandum etc
9. Special rules for supply of Electric Power
chapter III to Sales Tax Special Procedure
2007
1% special excise is not applicable by
virtue of Sr. 11 of SRO 655(I)/2007 as
amended to date (Federal Excise Act)
SRO 603(I)/2009 dated 25-6-2009
withholding rules applicable to LTU cases
will also apply to IPPs
10. Refund Rules are applicable to IPPs due to
change in section 8B(2) by finance Act, 2009
Table 2 Clause 6 of 6th schedule i.e. Supply of
fixed assets against which input tax adjustment
is not available under a notification issued in
terms of clause (b) of sub-section (1) of section
8 of the Sales Tax Act, 1990.
Table 2 Clause 4 of 6th schedule i.e. Raw
material and intermediary goods manufactured
or produced, and services provided or rendered,
by a registered person, consumed in-house for
the manufacture of goods subject to sales tax.
(units used in power house)
11. Chapter III to Sales Tax Special
Procedures 2007
11. Application.—The provisions of this Chapter
shall apply for Collection and payment of sales
tax on
electric power imported, generated, produced,
transmitted and supplied by
electricity generation, transmission and distribution
companies licensed under the Regulation of Generation,
Transmission and Distribution of Electric Power Act, 1997 (XL
of 1997),
including their distributors, dealers and agents, or
by any other person dealing in importation, generation,
production, transmission, distribution and supply of electric
power.
12. Mandatory registration u/s/r 14 of Chapter III of Sales
Tax Special Procedures
13. Levy and collection of sales tax.— (1) Every
person, referred to in the preceding rule, who supplies
electric power shall charge and collect sales tax at the
rate specified in sub-section (1) of section 3 of the Act.
Stages of collection defined u/s/r 2 to rule 13 of
Chapter III- See Responsibility of payment in next
slide
Value of Supply: In case of an IPP, HUBCO or KAPCO,
the value of supply shall be the amount received by such
IPP or, as the case may be, HUBCO or KAPCO, on
account of Energy Purchase Price only and any amount
in excess of Energy Purchase Price received on account
of Capacity Purchase Price, Energy Price Premium,
Excess Bonus, Supplemental Charges, etc., shall not be
deemed as a component of the value of supply:
13. (a) in case of its importation, the responsibility to pay sales tax shall be of the
importer, and the value thereof shall be the value as determined under section 25 or,
as the case may be, section 25B of the Customs Act, 1969 (IV of 1969), including the
amount of customs-duties and duty of excise duties levied thereon; and
(b) in case of generation, transmission, distribution and supply of electric power by a
public sector project like WAPDA a private sector project including an IPP, a Captive
Power Unit or any other person, the responsibility to collect sales tax shall be of the
person making the supply, and the value shall be the price of electric power including
all charges, surcharges excluding the amount of late payment surcharge, rents,
commissions and all duties and taxes whether local, Provincial or Federal, but
excluding the amount of sales tax, as provided in clause (46) of section 2 of the
Act8[: Provided that in case of electric power supplied by WAPDA, the additional
charge of Rs. 0.10 per kwh, collected on account of Neelum Jehlum Hydro Power
Development Fund shall not be included in value for determination of sales tax
payable.]
(3) In case of an IPP, HUBCO or KAPCO, the value of supply shall be the amount
received by such IPP or, as the case may be, HUBCO or KAPCO, on account of
Energy Purchase Price only and any amount in excess of Energy Purchase Price
received on account of Capacity Purchase Price, Energy Price Premium, Excess
Bonus, Supplemental Charges, etc., shall not be deemed as a component of the value
of supply: Provided that in case WAPDA or KESC disputes any amount, WAPDA or, as
the case may be, KESC, shall issue a certificate showing such amount and the tax
involved therein and such certificate shall be deemed to be a Credit Note for the IPP
for the purposes of section 9 of the Act, and shall be accounted for in the return for
the tax period in which such Credit Note is issued:
14. Date of Filing
WAPDA and KESC-21st day of the month
following the month in which the electric power
bill or invoice has been raised.
In case of an IPP, the due date for the purpose
of filing monthly sales tax return and for
payment of sales tax shall be the 25th day of
the month following the month to which the
sales tax invoice relates.
Any person other than an IPP, WAPDA or KESC
who supplies electric power shall file a monthly
sales tax return under section 26 of the Act and
Chapter II of the Sales Tax Rules, 2006, and
deposit the amount of sales tax payable for the
tax period by the due date.
15. Determination of sales tax liability in
respect of WAPDA and KESC.—
entitled to claim admissible input tax
adjustment in the manner specified in
section 7 of the Act, read with sections 8
and 8B thereof.
WAPDA and KESC shall be entitled to
claim admissible input tax adjustment
against sales tax paid on their taxable
purchases made in the month immediately
preceding the tax period.
16. 16. Input tax adjustment for registered
consumers.—
power bill issued by electric power distribution
company shall be treated as a tax invoice as
defined in clause (40) of section 2 of the Act.
registered consumers shall be entitled to claim
input tax adjustment against such invoice after
the bill has been paid, as per the provisions of
section 7, 8 and 8B of the Act provided the bill
contains registration number and address of the
business premises declared to the Collector by
such consumer.
17. Books of Account
shall maintain records as prescribed under
section 22 of the Act or a notification issued
there under.
shall print in his bill or invoice, as the case may
be, registration number of the consumer, if
applicable, the rate and the amount of sales tax
required to be charged by him under sub-section
(1) of section 3 of the Act.
may issue a computer generated sales tax
invoice and keep his record on the computer in
the prescribed format.
18. 18. Penalty.—Non-issuance of electric
power bill for a tax period-be liable to
penalties under the relevant provisions of
the Act.
If the tax is not paid within the due date
or in the manner as provided under this
Chapter, the registered person shall be
liable to pay default surcharge and such
other penalties prescribed in the Act.
20. WWF
Industrial Establishment
Definition of total Income
Intention of Legislature/promulgation
Definition of worker/Legal Opinion
Matter subjudice before a court of law
Applicability to workers of workers community or
specifically working in industrial under takings
Charging sections-basis of
22. Industrial Establishment
i. Any concern owning or managing a factory, workshop or other establishment in
which articles are produced, adapted or manufactured with the aid of electrical,
mechanical, thermal, nuclear or any other form of energy transmitted mechanically
and not generated by human or animal agency;
ii. Any concern working a mine or quarry or natural gas or oilfield;
iii. Any concern running a public transport service
iv. Any concern engaged in the carriage of men and goods by inland mechanically
propelled vessels;
Iva) Any establishment, to which the West Pakistan Shops and Establishment
Ordinance, 1969 (W.P. Ordinance No. VIII of 1969), for the time being applies;
v. Any concern engaged in the growing of tea, coffee, rubber or cinchona; and
vi. Any other concern or establishment which the federal government may, by
notification in the Official Gazette, declare to be an industrial establishment for the
purposes of this ordinance,
But does not include any concern or establishment which is owned by government, or by
corporation established by the Government or by a Corporation the majority of the
shares of which is owned by government.
23. Total Income
i. Where return of income is required to be filed
under this Ordinance, the profit (before
taxation or provision for taxation) as per
accounts or the declared income as per the
return of Income, which ever is higher; and
ii. Where return of Income is not required to
be filed, the profit (before taxation or
provision for taxation) as per accounts or four
percent of the receipt as per the statement
filed under section 115 of the Ordinance,
whichever is higher
24. The Charging Provisions-
Section 4
2% of total income by every industrial establishment with total
income greater than Rs. 500,000/-
To be paid to taxation officer having jurisdiction over industrial
establishment
Payable on or before the date of filing of returns of income with proof of
payment
Taxation officer shall determine the amount of WWF by order in writing
Any amount payable or refundable due to such order is adjustable under
subsection 1
Any amount determined in access of what was required to be paid as a
result of Appeal shall be refunded
Provisions of the Income Tax Ordinance for mode and time of recovery of
the Income tax leviable under the Ordinance shall mutatis mutandis apply
to recovery of amount due under subsection 1
Appeals against the order of taxation officers can be filed before the
Commissioner of appeals appointed under the Ordinance
25. Further amount -section 4A
Federal Govt. by notification in official gazette and by
appointment of one or more committees on
recommendation can in addition to the amount payable
under section 4 for any year of account can determine
such amount as may be recommended by such
committees
Committees have to examine individually the financial
reasons and circumstances for each industrial
undertaking
Can call such information as they deem necessary
If no such information is furnished by the industrial undertaking
the committee can recommend of the basis of available
information
26. Liability to be discharged by
certain persons- Section 5
Person who is liable to pay Income tax in
respect of the Income relatable to such
industrial establishment
U/s 13 Federal Government can reduce or
remit the amount due through a
notification in Official Gazette
28. Definitions
Company;
Means a company as defined under Companies Ordinance 1984
And Includes
A body Corporate established by or under any law for the time
being inforce;
Any institution, organization or association whether incorporated or
not, declared by Federal Government in the Official Gazette to be a
company for the purposes of this Act;
Profits
As defined u/s 87C of companies Act-Since companies Act is not
more there and in 1984’s Ordinance Net profits are not defined
there this definition is redundant
Worker
Employee of the company including through contractor as
defined under clause xxx of section 2 of the Industrial relations
Ordinance, 2002
29. The charging provision-Section 3
Company to which scheme applies shall has to
establish fund u/s 3 as soon as the accounts of
the year in which the scheme become applicable
are finalized but not later than 9 months from
the close of the year
Pay to fund subject to adjustment Not later than
9 months of close of the year 5% of its profits
Furnish audited accounts to Federal Government
and the Board
30. Management of Fund-Section 4
Board of trustee-establish within 2 months of
establishment of fund
Two persons elected by workers amongst
themselves
Two being nominated by the company one of
whom shall be from accounts branch of the
company
Trustees shall elect for one year a person to be
the chairman-alternatively amongst the trustees
Procedures of the Board are defined u/s/s 3 to
11
31. Penalty-Section 5
Federal Govt. on default of the company can charge Rs.
5000 and Rs. 1000 for each day of default if the default
continues
Penalty if not paid is recoverable like a land revenue
On application within a period of 6months from the date
of order Federal Govt. can review the order
If any defaulting employer complies strictly to the
scheme and provisions so far as they are applicable then
notwithstanding any thing contained in this act or
scheme, penalty cannot be charged neither the company
is liable to pay interest as provided in the scheme
32. Powers with the Federal Govt
To call for information
Settlement of disputes
Delegation of powers
Power to make rules
Act to override other laws
33. The scheme
This scheme shall apply to all companies engaged in
industrial undertakings which satisfy any one of
the following condition, and to such other companies
as the Federal Govt. may, by notifications in the official
gazette, specify in this behalf, namely:-
The number of workers employed by the company at any time
during a year is 50 or more
The paid up capital of the company as on the last day of its
accounting year is Rs. 5 m (Rs 2 M before 2006’s change) or
more
The value of fixed assets of the company at cost as on the last
day of the accounting year is Rs. 20m (Rs. 4m before the
change ) or more
34. Industrial undertaking means an
institution, organization, enterprises or
establishment which involves the use of
electrical, mechanical, thermal, nuclear or
any other form of energy transmitted
mechanically and not generated by human or
animal agency and which is engaged in any
one or more of the following operations;
i. ….
ii. ….
iii. The transformers, generation, conversion,
transmission or distribution or electrical energy,
including hydraulic power; and
iv. …..
v.
35. Legal preposition
Reading application of scheme with
definition of industrial undertaking
Remember any one condition has to met
They are generating energy-The definition
Have more than 5 m paid up cap-Condition
Have more than 20 m cost of assets-Condition
Even if workers clause is not met above 2
will be met in most cases
36. Fund is available for investment is
company’s operations
Company shall pay interest 2.5% above
bank rate or 75 percent of dividend’s rate
which ever is higher
Incase the company issues further capital
the fund shall have the first option
37. Distribution & Disbursement of
Benefits
All workers are eligible to benefits and to participate however he
has to complete 6 months of employment in a year for eligibility
Shares of workers shall be calculated in number of units with a face
value of Rs. 10
Be divided into three parts for three categories of workers
Category 1(Average monthly salary not exceeding Rs. 7500)= 4 * x
Category 2 (Average monthly salary Exceeding 7500 but not Rs.
15000)= 2 * x
Category 3 (Average monthly salary Exceeding 15000)= x
Monthly salary be rounded to the nearest 10
Number of units available for each category be divided equally in all
workers of that category
No worker shall be allowed to get more than four times of the
minimum wages of unskilled worker notwithstanding any thing
contained in this scheme
38. Distribution
100% of annual income of fund +capital gains
A worker who voluntarily leaves employement or
terminated one 100% of net assets value in his name
For continuing workers its choice for them to get their
100% share in assets every year to leave them invested
Incase of retirement or death while in employment will
receive 100% in net assets in his name
Voluntary contributions can be made not exceeding 10%
of their annual wages
39. Misc
Fund is Exempt from Income tax (clause
9)
Allowable deduction in Income tax-for
companies (clause 8)
Income of workers are Income tax exempt
(clause 10)
Audit (clause 12)
This shall be in addition to other benefits
that may be available to workers
