Hubco settles tax dispute once and for all

Takes advantage of FBR’s scheme and does not pay surcharge.

KARACHI: Hub Power Company (HUBCO) has decided to end a standoff – which included freezing of its bank accounts – with the tax authority on Wednesday by paying off tax liability amounting to Rs1.65 billion.

“Despite assurance of payment of these dues, the company still believes that it is not liable for this tax and will continue vigorously defend itself before the court of law,” the company said in a statement sent to the Karachi Stock Exchange. The company has filed appeals before the Supreme Court.

The country’s largest independent power producer Hubco availed a tax benefit scheme launched by FBR and will not be required to pay penalties and default surcharge for the delay in payment, says a notice sent to the Karachi Stock Exchange. As per the scheme, exemption is granted on the entire surcharge and penalty for non-payment, if the defaulter pays actual tax dues by May 31, 2012.

The company has been in dispute with the Federal Board of Revenue (FBR) regarding non-deduction of withholding tax when the power producer issued share to its sponsors against project development cost incurred by them. The tax department has assessed a tax liability of Rs1.9 billion of which company has already deposited Rs297 million. However, with the long pending case since 1999, the assessed liability has grown to Rs3.25 billion due to late payment penalty and interest charges, according to Topline Securities.

The management’s decision to pay depicts its attitude towards resolving all the outstanding tax issues in an amicable manner rather than opting to take a course of confrontation that may affect the shareholders as was happened recently when tax authority froze Hubco’s bank accounts, said Topline Securities analyst Nauman Khan.

The development would not have an impact on the company’s earnings but could affect dividend payout in the upcoming few quarters, added Khan.

Published in The Express Tribune, May 31^st, 2012.