Not part of CPEC: Tax exemption bid for Orange Line train thwarted

At ECC meeting, Dar could not approve $1.6b tax concessions for the project

ISLAMABAD: The bureaucracy on Tuesday blocked a controversial move by the federal government to grant Rs20 billion tax exemptions to Punjab government’s pet multibillion-dollar Orange Line metro train project by declaring it part of the China-Pakistan Economic Corridor (CPEC).

The unusual development took place in a meeting of the Economic Coordination Committee (ECC) of the Cabinet where Finance Minister Ishaq Dar could not approve the tax concessions for the $1.6 billion Orange Line metro project despite his best efforts, said highly placed sources.



To keep the matter secret, the government neither circulated the summaries of the ECC meeting nor issued the agenda, which is a violation of the 1973 Rules of Business.

The ECC deferred the summary after strong objections were raised by the bureaucrats and a public officeholder on the issues of giving preferential treatment and compromising state’s sacred revenues for the sake of China.

The Privatisation Commission’s Chairman Mohammad Zubair, the Federal Board of Revenue (FBR) Chairman Nisar Mohammad Khan and the Economic Affairs Division Secretary Tarik Bajwa opposed the proposal to give tax concessions to the metro project by going out of the way, said the sources.

The ECC chairman, who happens to be Finance Minister Ishaq Dar, asked the opposing voices to remain quiet, but all of them registered their dissenting views.

However, the ECC approved special status for $2.1 billion Lahore-Mitaria Transmission Line project by exempting it from International Competitive Bidding and giving it preferential treatment in award of tariff. The concessions were given by treating the transmission line project as part of the CPEC, although originally it was not part of the 2014 CPEC Energy Framework Agreement.



Orange Line project

By negating its earlier stance, the federal government on Tuesday submitted a summary to the ECC, stating that the Orange Line project may be exempted from payment of taxes and duties by considering it as “to be part of the CPEC”. The government had earlier told the Supreme Court and the Lahore High Court that the $1.6 billion project was not part of the CPEC.

The FBR chairman told Dar that ECC was not the right forum to declare any project a part of the CPEC for winning tax concessions. Khan was of the view that if the government gave tax concessions on every third project then how the FBR would achieve its targets. Dar asked him to remain quiet. However, Khan said summary to give tax concessions was contrary to the policy statement of enhancing direct taxes.

In a bid to restrict cost of the Orange Line metro train project to $1.6 billion, the Punjab government had sought Rs20 billion or roughly $195 million as tax exemption while claiming a similar preferential treatment that is available to the CPEC. The provincial government sought reduction in withholding tax payments and complete exemptions from sales tax and customs duty.

Privatisation Commission Chairman Zubair questioned as to why the ECC earlier declared Orange Line a non-CPEC project. The sources said Zubair also asked what message the Khyber-Pakhtunkhwa would get when the ECC would exempt Orange Line project from payment of taxes.

Upon this, the sources said, Planning Minister Ahsan Iqbal said the K-P can also approach to get similar benefits for its Peshawar Mass Transit project but the federal government would not approach the provincial government.



The Secretary EAD also raised the issue of giving preferential treatment to a single province. Sources said Tarik Bajwa was also of the view that the federal government should not give this concession to a Chinese company, as the taxes are to be paid by the provincial government.

Dar reportedly informed the ECC that Prime Minister Nawaz Sharif has approved to make the Orange Line Project a part of the CPEC along with Karachi Circular Railway and Quetta Circular Railway project. However, under the CPEC Framework agreement, a consensus of China and Pakistan was required for declaring any project a part of the CPEC.

The sources said including the Karachi Circular Railway into the CPEC was only aimed at avoiding criticism against the Orange Line Project.

Transmission Line

The ECC also deliberated upon the Ministry of Water and Power’s proposal regarding implementation of 660KV High Voltage Direct Current transmission line from Matiari to Lahore project. The ECC authorised the ministry and Private Power Infrastructure Board to process 660KV project with State Grid Corporation of China and China Electric Power Equipment & Technology Company.

However, it said the approval was subject to acceptance of the National Electric Power Regulatory Authority (Nepra) approved tariff for the project and fulfillment of other applicable provisions of Transmission Line Policy 2015 on the basis of fact that the project has been conceived and awarded under CPEC.

Nepra had determined the cost of transmission line at $2.70 billion as well as transmission tariff at Rs 0.74 per unit, which is double the price the National Transmission and Dispatch Company (NTDC) is charging at the current transmission system. The $2.1-billion, 878-kilometre-long Matiari-Lahore Transmission Line was planned to supply 4,000MW of electricity from coal in Sindh to cities in Punjab.

Published in The Express Tribune, December 21^st, 2016.