The government is expected to offer tax exemptions to Offshore Supply Contractors (OSCs) associated with hydropower projects in AJ&K.
According to the details China Three Gorges Corporation is developing 1,124MW Kohala Hydropower Project (KHCL) in AJ&K while China Gezhouba Group Company Limited as main sponsor is developing 700.7MW Azad Pattan Hydropower Project (APPL) which is located in AJ&K and Punjab. Both projects are part of CPEC.
Previously both companies had voiced their concerns that at the time of promulgation of the Policy for Power Generation Projects 2002, execution of offshore supply contracts, submission of tariff petitions to Nepra and issuance of Letter of Support (LoS) by PPIB, there was no tax applicable on payments made to the OSCs. Later under the Finance Act, 2018 the OSC were brought within the ambit of tax.
The Finance Act, 2019 stated that payments shall be made after deduction of 2.1 percent Withholding Tax (WHT) as minimum tax on EPC Offshore Supply Contract. This was later reduced to 1.4 percent through Finance Bill, 2020.
Considering the strategic importance of the project the power division has recommended that the rate of withholding tax on value of offshore supply contract of an independent power producer located wholly or partly in territories of AJ&K shall be fixed to 1 percent if PPIB has issued Letter of Support for the project.
This recommendation has been accepted by the ECC and submitted to Federal Cabinet for ratification.
