LNG terminal: FBR reluctant to extend income tax exemption
Five-year tax holiday was promised under the 2011 LNG policy.
Four hundred mmcfd is the re-gasification capacity of the ship chartered by ETPL from US-based Excelerate Energy for handling LNG imports for 15 years. PHOTO: FILE
ISLAMABAD:
Just weeks before the country’s first liquefied natural gas (LNG) terminal commences commercial operations, tax authorities are reluctant to provide a promised five-year income tax holiday to Engro’s Elengy Terminal Pakistan Limited (ETPL), highlighting inconsistency in economic policies.
If the government backs down on its commitments that were given to all investors in the LNG sector under the 2011 LNG policy, then the much-trumpeted first-ever floating LNG re-gasification terminal could become financially unviable.
The Pakistan Peoples Party government had introduced the LNG policy, offering incentives to investors in a bid to ease the energy crisis. Incentives were promised to LNG developers, terminal operators and LNG buyers as part of the policy approved by the Economic Coordination Committee (ECC) of the cabinet in April 2012.
However, when the time to implement the policy came, the Federal Board of Revenue objected to giving certain exemptions, which were earlier promised under the 2011 policy, said an official of the Ministry of Petroleum and Natural Resources.
“It wants to give partial income tax exemption and insists on levying 17% alternative corporate tax on the LNG plant,” he added.
The Ministry of Petroleum has taken up the matter of tax exemption with the FBR on many occasions. Last month, the ministry sent a fresh summary to the ECC seeking clarity on the issue. The ECC has yet to take up the issue, though the re-gasification terminal is almost ready for commercial operations.
The FBR’s stance highlights the hurdle of red tape in conducting the official business that is discouraging new investment. Pakistan has one of the lowest investment-to-GDP ratios and even a pro-business PML-N government could not do much to improve the ranking.
The ETPL terminal is being set up under a fast-track LNG project, approved by the ECC. The company has chartered a specialised ship for 15 years from US-based Excelerate Energy, which will have the capacity to re-gasify 400 million cubic feet of gas per day (mmcfd).
Engro offered the lowest tolling fee for re-gasification of imported LNG on the basis of tax incentives offered by the government. The company says all project feasibilities and accordingly the tariff offered depend on the tax incentives given under the LNG policy and approved by the ECC.
These include a five-year tax holiday from all kinds of income tax to LNG terminal operators. But the FBR is of the view that 17% alternative corporate tax is not part of the exemption.
Tax experts argue that the FBR’s stance does not have legal standing as the alternative corporate tax was also levied under the Income Tax Ordinance of 2001.
The tax incentives also include temporary duty-free import of plant, machinery, equipment and LNG terminals on import-cum-export basis. A similar facility is also available to exploration and production companies.
“The company is not asking for any special treatment as all these incentives have been offered in the LNG policy and become the base of our calculations,” said Imranul Haque, the chief executive officer of ETPL. Haque said the matter was now again in the ECC for interpretation.
In its summary, the Ministry of Petroleum has reiterated the five-year tax holiday, exemption from minimum income tax and alternative corporate tax.
While the FBR is reluctant to extend incentives to the LNG business, it has already notified these exemptions for power and coal sectors.
If the government honours its commitments, the company will be exempted from income tax for first five years of its commercial operations but will pay taxes for the remaining 10-year life of the project.
The company has obtained a $30 million loan from the Asian Development Bank and is negotiating another $20 million with the World Bank. The estimated cost of the project is $133 million.
Under the LNG Services Agreement between ETPL and Sui Southern Gas Company, the plant has to be operational by the end of this month.
Published in The Express Tribune, March 8th, 2015.
Just weeks before the country’s first liquefied natural gas (LNG) terminal commences commercial operations, tax authorities are reluctant to provide a promised five-year income tax holiday to Engro’s Elengy Terminal Pakistan Limited (ETPL), highlighting inconsistency in economic policies.
If the government backs down on its commitments that were given to all investors in the LNG sector under the 2011 LNG policy, then the much-trumpeted first-ever floating LNG re-gasification terminal could become financially unviable.
The Pakistan Peoples Party government had introduced the LNG policy, offering incentives to investors in a bid to ease the energy crisis. Incentives were promised to LNG developers, terminal operators and LNG buyers as part of the policy approved by the Economic Coordination Committee (ECC) of the cabinet in April 2012.
However, when the time to implement the policy came, the Federal Board of Revenue objected to giving certain exemptions, which were earlier promised under the 2011 policy, said an official of the Ministry of Petroleum and Natural Resources.
“It wants to give partial income tax exemption and insists on levying 17% alternative corporate tax on the LNG plant,” he added.
The Ministry of Petroleum has taken up the matter of tax exemption with the FBR on many occasions. Last month, the ministry sent a fresh summary to the ECC seeking clarity on the issue. The ECC has yet to take up the issue, though the re-gasification terminal is almost ready for commercial operations.
The FBR’s stance highlights the hurdle of red tape in conducting the official business that is discouraging new investment. Pakistan has one of the lowest investment-to-GDP ratios and even a pro-business PML-N government could not do much to improve the ranking.
The ETPL terminal is being set up under a fast-track LNG project, approved by the ECC. The company has chartered a specialised ship for 15 years from US-based Excelerate Energy, which will have the capacity to re-gasify 400 million cubic feet of gas per day (mmcfd).
Engro offered the lowest tolling fee for re-gasification of imported LNG on the basis of tax incentives offered by the government. The company says all project feasibilities and accordingly the tariff offered depend on the tax incentives given under the LNG policy and approved by the ECC.
These include a five-year tax holiday from all kinds of income tax to LNG terminal operators. But the FBR is of the view that 17% alternative corporate tax is not part of the exemption.
Tax experts argue that the FBR’s stance does not have legal standing as the alternative corporate tax was also levied under the Income Tax Ordinance of 2001.
The tax incentives also include temporary duty-free import of plant, machinery, equipment and LNG terminals on import-cum-export basis. A similar facility is also available to exploration and production companies.
“The company is not asking for any special treatment as all these incentives have been offered in the LNG policy and become the base of our calculations,” said Imranul Haque, the chief executive officer of ETPL. Haque said the matter was now again in the ECC for interpretation.
In its summary, the Ministry of Petroleum has reiterated the five-year tax holiday, exemption from minimum income tax and alternative corporate tax.
While the FBR is reluctant to extend incentives to the LNG business, it has already notified these exemptions for power and coal sectors.
If the government honours its commitments, the company will be exempted from income tax for first five years of its commercial operations but will pay taxes for the remaining 10-year life of the project.
The company has obtained a $30 million loan from the Asian Development Bank and is negotiating another $20 million with the World Bank. The estimated cost of the project is $133 million.
Under the LNG Services Agreement between ETPL and Sui Southern Gas Company, the plant has to be operational by the end of this month.
Published in The Express Tribune, March 8th, 2015.