ISLAMABAD: Amid rising tax pressures on the general public, it has been revealed that Independent Power Producers (IPPs) have benefited from substantial tax exemptions amounting to Rs1.217 trillion from the mid-1990s through the 2023-24 fiscal year, according to official sources.
These tax breaks, in addition to capacity payments estimated to reach Rs2.091 trillion this fiscal year, have sparked debate. The IPPs, owned by about 40 influential families with connections to political power, enjoy corporate tax exemptions on profits and gains from electric power plants established since July 1, 1988.
Over successive governments, including both democratic and autocratic regimes, around 106 IPPs have been established with lifetime tax exemptions. Official records indicate that up until 2018-19, governments disclosed the tax exemption data in economic surveys. However, as the exemptions increased, the details were obscured by merging them with other sectors.
Renowned economist Dr. Hafeez Pasha estimates that these tax exemptions were worth Rs1 trillion up to 2017-18. The favorable pricing mechanisms for IPPs, which include guaranteed coverage of capacity charges and fuel costs, have allowed some to earn a 25-30% return on equity in various years, reducing their market risk significantly.
The rise in tax exemptions has been linked to the surge in IPPs established during various regimes, notably during the PML-N government (2013-2018) and the PTI and PDM governments (2018-2023). Recent fiscal years saw fluctuations in exemption amounts, with a peak of Rs56.02 billion in FY23, followed by a decrease to Rs30.23 billion in FY24 due to renegotiations of IPP contracts.
Story by Mubarak Zeb Khan
