FBR has stated that Engro’s LNG terminal was not entitled to a five-year income tax holiday and a relief in import duties, said a top official of the tax machinery. CREATIVE COMMONS
Putting future investments in the LNG sector in a limbo, tax authorities have refused to provide promised tax exemptions to Engro’s Elengy Terminal Pakistan Limited (ETPL) despite the policy being approved by the country’s highest economic decision-making body.
The Federal Board of Revenue (FBR) has stated that Engro’s LNG terminal was not entitled to a five-year income tax holiday and a relief in import duties, said a top official of the tax machinery.
The FBR’s adamant attitude has brought the issue back on the table of the Economic Coordination Committee (ECC) of the Cabinet that has already approved the policy four years back. The ECC will meet today (Thursday) to discuss the latest position, as the Ministry of Petroleum and Natural Resources backs Engro’s demand.
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 first-ever floating LNG re-gasification terminal could become financially unviable. It may also threaten future investments in the LNG terminal construction, as the government plans to set up more terminals to facilitate LNG imports.
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 ECC in April 2012.
However, when the time to implement the policy came, the FBR objected to give certain exemptions, which were earlier promised under the 2011 policy.
Engro’s Floating Storage and Re-gasification Unit (FSRU) does not fall in the definition of power plant, thus not entitled for import duties exemptions, said the FBR’s senior official.
However, the petroleum ministry officials said the FSRU would fall in the category of import-cum-export machinery and was eligible for exemptions, as approved by the ECC to attract investment in this sector. The FSRU will permanently remain docked at Port Qasim for 15 years, the life of the project.
The FBR was willing to exempt the income tax but was not ready to waive off the minimum turnover tax of 1% despite promised blanket income tax exemptions in the LNG policy.
The FBR’s stance highlights the hurdle of red tape in conducting 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 company has chartered the FSRU for 15 years from the US-based Excelerate Energy, which will have the capacity to re-gasify 400 mmcfd.
Engro offered the lowest tolling fee of $0.66 per mmbtu for re-gasification of imported LNG on the basis of tax incentives offered by the government. The company says all project feasibilities and the tariff offered depend on the tax incentives given under the LNG policy and approved by the ECC.
Tax experts argue that the FBR’s stance does not have legal standing as the minimum turnover tax was also levied under the Income Tax Ordinance of 2001.
Due to a similar faulty argument, it has already lost a case in the Peshawar High Court for tax exemptions granted to the war-torn areas of the country.
Published in The Express Tribune, April 9th, 2015.
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