ISLAMABAD: The Federal Board of Revenue (FBR) has decided to reopen a three-year-old Rs1.2-billion tax demand case against K-Electric – the country’s largest power distribution company, which is currently passing through a phase of ownership change.
“We are reopening the K-Electric case in the light of a decision taken by the Departmental Accounts Committee (DAC),” said Nisar Muhammad Khan, FBR Chairman, while addressing audit objections in a meeting of the Public Accounts Committee (PAC).
The FBR’s decision comes at a time when the Abraaj Group is in the process of getting regulatory approvals to sell its stake in K-Electric to a Chinese company for $1.77 billion. The Abraaj Group owns the power utility through one of its companies, KES Power, which is an offshore enterprise.
Owing to KES being an offshore company, the $1.77 billion will not pass through Pakistan, according to officials who were involved in the regulatory approval process.
Abraaj owns 66.4% of K-Electric’s shares along with management control. The buyer is Shanghai Electric Power, a state-owned enterprise controlled by China’s State Power Investment Corporation, a Fortune 500 company.
The Auditor General of Pakistan (AGP) had objected to the FBR’s decision to set aside Rs1.19 billion tax demand against K-Electric. After the AGP’s objections, the issue was discussed in a meeting of DAC, which comprises representatives of the audit department and FBR.
“DAC directed that the department (FBR) make the reference in K-Electric’s case involving Rs1.19 billion,” according to the audit brief presented in the PAC meeting.
The Director General Audit of AGP informed PAC that the FBR commissioner had raised the demand against K-Electric on account of not realising Rs1.19 billion in taxes from steel melters, re-rollers and composite units.
K-Electric was required to collect Rs6 on every unit of electricity consumed by these factories and deposit the money in the FBR’s coffers, he said. Instead of giving effect to the commissioner’s order, the FBR headquarters set it aside.
The FBR chairman admitted that in the K-Electric case, there were certain lacunas, therefore, the department now decided to reopen the case.
However, he said the FBR had improved its systems, which helped save at least Rs120 billion last year on account of less input adjustment claims by the taxpayers. “Now, the system processes sales tax refund claims and automatically rejects the suspicious ones.”
PAC also directed the FBR to actively pursue Rs2.85 billion worth of tax claim against Sui Southern Gas Company. The matter has been pending before the Sindh High Court for years, according to the federal auditors.
PAC Chairman Khursheed Shah told the FBR to review its panel of lawyers and appoint capable persons in order to actively follow the case.
He was of the view that the FBR was not actively pursuing the cases of revenue stuck in litigation and pointed out that roughly Rs4 trillion of state revenues were stuck at various stages in courts and at least Rs400 billion was the FBR revenue.
PAC directed the FBR to submit a list of disputed cases. It was also not happy with working of both the AGP and the FBR. Committee members were of the view that the auditors should pinpoint the tax officers whose negligence caused losses of billions of rupees to the exchequer.
The AGP did not mention the names of FBR officers in the report presented in the meeting. Acting AGP Imran Iqbal said in the original report the AGP had asked the FBR to fix responsibility.
PAC also directed the FBR to improve its policies to enhance the tax base. It advised the tax authorities not to extend the date for filing income tax returns as people did not take the last date seriously in the hope of getting extensions.
Published in The Express Tribune, January 12th, 2017.