Soon Rs.50 billion sales tax waiver for CPEC hydropower projects

In another friendly gesture toward China, the Pakistan government may soon withdraw general sales tax (GST) on construction of hydropower projects being developed by Chinese companies under the China-Pakistan Economic Corridor (CPEC).

According to the Dawn, which quoted informed sources, these tax exemptions will be similar to those given to mass transits like Lahore Orange Line Metro Train.

At least three major hydropower projects with cumulative generation capacity of over 2,700 megawatts among the priority list of CPEC would immediately qualify for the GST waiver worth over Rs.50 billion to facilitate their implementation, which is currently at very early stage.

It is expected that the move would improve cash flows of major investors like China Gazhouba Group and China Three Gorges Corporation.

Last week, the Economic Coordination Committee (ECC) of the Cabinet granted a Rs.20 billion tax relief to the Orange Line metro project and decided to extend the same benefits to three future projects of similar nature in Karachi, Quetta and Peshawar with cumulative impact estimated at around Rs80bn.

The sources said the proposal currently under examination would also be in line with similar tax exemptions on Thar coal-based power projects in Sindh to promote indigenous energy resources. Early last year, the Sindh government withdrew GST on services on construction of power projects to be run on Thar coal.

The hydropower resources are not only cleaner sources of energy but also renewable and indigenous.

Clause 4 of the CPEC framework agreement requires that Pakistan would ensure all preferential conditions to China that it may have extended to any other investor.

This meant that hydropower projects being developed by Chinese firms also qualify for tax benefits that have been extended to Thar coal, mass transit projects in four major cities or infrastructure projects of the National Highway Authority.

The hydropower projects to qualify for these GST exemptions at this stage have been identified as $1.9bn, 720MW Karot Hydropower Project on the Jhelum river on the boundary of Azad Kashmir and Punjab; Khyber Pakhtunkhwa's 870MW Suki Kinari Hydropower Project on the Kunhar river, a tributary of Jhelum; and more than $2.5bn, 1100MW Kohala Hydropower Project on the Jhelum river in Pakistan-held Kashmir.