ECC likely to
impose GST on hydropower
MARCH 13, 2012: The Economic Coordination Committee of the
cabinet is likely to approve on Tuesday a proposal to export
over two million tons of wheat, impose 16 per cent general
sales tax on hydropower produced by Wapda, clear Rs6.1
billion commercial loan of Pakistan Railways and consider a
proposal to import urea for the coming Kharif season.
A meeting of the ECC, to be presided over by Finance
Minister Dr Abdul Hafeez Shaikh, may also discuss financing
arrangements for the Iran-Pakistan gas pipeline project for
completing it by December 2014.
Iran has promised to provide $300 million for the pipeline
to be built in Pakistan, but a written offer from Tehran is
The meeting is expected to consider a proposal for a
one-time tax-free import of some industrial products from
Sources told Dawn on Monday that there was a carryover stock
of about 3.4 million tons of wheat from last season, while
the new crop to be harvested from April 1 was likely to
yield an additional 25 million tons.
Considering a domestic requirement of about 23 million tons
for the year ahead, government agencies expect a surplus of
more than five million tons, which will not only create
storage problems and constrain the provincial governments
from procuring fresh produce but also create a huge circular
debt crisis for the banking industry.
TThe authorities are of the
opinion that strategic reserves of about two million tons of
wheat are sufficient for market intervention — one million
tons to be kept with the federal agencies and a similar
quantity to be shared with the provincial governments.
The ECC meeting will be briefed on the overall stock
position and expected crop yield this season and will be
requested to consider the proposal to provide subsidies for
exports to replace the existing stock with fresh produce in
view of the fact that lower international prices make
Pakistan’s grain non-competitive.
On top of the surplus stocks, the recent increase in wheat
support price by over 10 per cent announced by the centre
has put the Punjab government in a quandary because of over
Rs100 billion stuck in the wheat trade and fresh crop ready
to be procured at Rs1,050 per 40kg.
The sources said the wheat trade was becoming a major
political issue ahead of the next general election because
the federal government had announced the higher support
price without discussing it with chief ministers in the
Council of Common Interests. The Punjab government has
criticised the decision because it will have to offer the
same price to its farmers.
The ECC will also consider a proposal for 16 per cent GST on
hydropower generation. The issue was discussed at a previous
ECC meeting but was deferred owing to the absence of Wapda
chairman. The ECC had directed the Wapda chairman to attend
the next meeting.
The issue emanates from an anomaly in the sale tax
adjustment mechanism and Wapda’s accounting processes. While
independent power producers (IPPs) invoice their sales to
the Central Power Purchase Agency on variable energy
purchase charges, Wapda’s similar invoices also include a
two-part tariff — fixed charge and variable charge.
If Wapda charges output sales tax on the amount of total
monthly invoice (both fixed and variable charges), there
will be a huge output tax to be paid to the Federal Board of
Revenue against a normal input (i.e. operation and
maintenance of hydroelectric power) which is nearly five per
cent of the total output tax, raising serious cash flow
problems for Wapda. Therefore, Wapda wants application of
sales tax only on variable charges.
The ECC may also approve a Rs6.1 billion loan for Railways
to be raised by a consortium of commercial banks, led by the
National Bank of Pakistan, for procurement of new
locomotives. The ministry of finance will provide sovereign
guarantee for securing principal and mark-up payments which
can always be invoked in case of non-payment/short payment
The ministry of railways will make a legal provision in its
budget for the next five years for payment of instalments to
the consortium and will ensure that railways’ assets are not
sold till the clearance of the loan.
The committee may also consider a proposal to compensate
four IPPs because of recent disruption in gas supplies by
amending agreements relating to force majeure clauses.