FBR attaches accounts of five Discos

Federal Board of Revenue (FBR) has reportedly attached accounts of five power Distribution Companies (Discos) to achieve revenue targets agreed with the International Monetary Fund (IMF), well informed sources told Business Recorder.

FBR, sources said, has been tasked to collect Rs 40-42 billion from the poor performing power sector by June 30, 2016 as part of commitments with the Fund.

The Discos whose accounts have been attached are as follows: (i) Faisalabad Electric Supply Company (Fesco) ;( ii) Lahore Electric Supply Company (Lesco);(iii) Gujranwala Electric Power Company (Gepco);(iv) Islamabad Electric Supply Company (Iesco) and (v) Sukkur Electric Supply Company (Sepco).

The sources said, currently 17 per cent General Sales Tax (GST) is allocable on the power sector in the form of input and output.

However, FBR has created an anomaly by demanding that the power sector entities should pay GST on billing whereas the Ministry of Water and Power is of the view that GST should be charged on collection.

According to sources FBR suggested that GST should also be paid on the subsidy being given to the power sector, warning that if the “orders” of FBR are not implemented the ” due” amount of GST will be deducted from the accounts of entities.

“Our claim of GST against FBR is Rs 103 billion but the latter is not ready to accept it. FBR says that total volume of refund claims from all sectors are Rs 110 billion of which Rs 49 billion is of textile sector,” the sources further added.

This issue has been deliberated in three meetings amongst the stakeholders but the outcome is zero as FBR is not ready to hear arguments of other parties.

Another issue which has become a cause of serious conflict between the Water and Power Ministry and FBR is that the latter is resolute in collecting minimum tax from government owned power sector companies as the exemption expired in 2014-15.

Government had extended exemption from minimum tax to the power sector companies in 2009-10 due to their dismal financial condition. The exemption expired in 2014.

Water and Power Ministry had moved a summary to the ECC seeking extension in minimum tax. The ECC had constituted a committee which has not finalised its recommendations so far.

“Water and Power Ministry argues that the power sector is still struggling and unable to pay minimum tax. If there is any dispute, it should be settled by holding meetings,” the sources maintained.

Another dispute between the power sector and FBR is reversal of increased GST from 17 per cent to 20 per cent on the electricity being produced by the Independent Power Producers (IPPs).

Recently, Ministry of Water and Power recommended to the government to withdraw three percent increase in General Sales Tax (GST) on High Sulpher Furnace Oil (HSFO) being consumed by Independent Power Producers (IPPs).

Many IPPs are generating HSFO. Previously, under the Sales Tax 1990 (STA), HSFO was subject to a levy of 17 percent GST which is adjustable against the GST payable on the sale of electricity, while any excess balance is recoverable from the FBR under the STA.

However, on September 30, 2015 the FBR issued a new SRO according to which the import and supplies of furnace oil would now be subject to the increased levy of 20 percent GST.

This increase in GST will result in an increased amount of cash to be paid to the fuel supplier, thereby affecting the cash flow of the IPPs adversely and will also result in sufficient amount of refund claim from the FBR.

The settlement of refunds in the FBR takes a long time and the IPPs are agitating the matter as their working capital requirement would be significantly enhanced.

The sources said, enhanced rate of 20 per cent GST on supply of HSFO being an important input will result in increase in tariff for the end consumers and general price hike.

The Central Power Purchasing Agency (CCPA- guarantee) Limited has also not supported the enhancement in the rate of GST on HSFO. The matter was also discussed by the Ministry of Water and Power with the FBR prior to submission of summary to the ECC.

Hub Power Company (Hubco) had also approached the FBR seeking reduction in sales tax rate from 20 to 17 percent on supply of imported HSFO or enhancing sales tax on electricity from 17 to 20 percent to deal with problems of accumulated refunds and cash flows of the IPP.

Hubco maintained that the company is generating electricity (both at Hub and at Narowal) by using HSFO falling under PCT Code 2710.1941. Under the Sales Tax Act, 1990 (STA) HSFO is subject to levy of GST at 17 percent.

This GST paid by the company is adjustable against the GST payable on sale of electricity. Any excess balance is recoverable from FBR under the Sales Tax Act.

Hubco further argued that by virtue of the SRO the supply of imported HSFO by fuel suppliers would be subject to 20 percent GST instead of 17 percent while the GST rate payable on electricity remains at 17 percent.

This will create serious problems as the enhanced rate will increase the amount of cash to be paid to fuel supplier thus affecting the cash flow adversely. The issue came under consideration in the ECC meeting recently presided over by the Finance Minister, Ishaq Dar.

The meeting did not reach consensus and directed both the Chairman FBR and Secretary Water and Power to sort the issue. However, FBR is not ready to cooperate with the Water and Power on this matter, the sources concluded. –Business Recorder