ISLAMABAD: The people of Pakistan have been burdened with heavy taxes, while Independent Power Producers (IPPs) have received tax holidays amounting to Rs1.217 trillion since 1988, granted by successive federal governments.
Reports reveal that from 1988 to 2024, the tax exemptions for IPPs surpass capacity payments, which are expected to reach Rs2.091 trillion in the current fiscal year.
These IPPs are owned by 40 influential families with direct or indirect ties to ruling elites, both in democratic and autocratic regimes in Pakistan.
Sources in the Ministry of Finance revealed that five major IPPs were set up under the post-1988 power policy until 2002. Of these, four IPPs have completed their power purchasing contracts, leaving only one: the Hub Power Company, Pakistan’s first IPP, which continues to generate electricity under the same concessions.
During the autocratic rule of General Pervez Musharraf, 10 new IPPs were established between 2002 and 2008. Under the PPP government from 2008 to 2013, 10 more were set up, all enjoying tax exemptions.
There was a significant increase in the number of IPPs under the PML-N government from 2013 to 2018, with 55 new power plants being established. Between 2018 and 2023, an additional 40 were set up during the PTI and PDM governments.
According to data from economic surveys, the tax exemption for IPPs amounted to approximately Rs51.5 billion from 2014 to 2016.
Domestic and foreign IPPs enjoy corporate tax exemptions on profits and gains from electric power plants established after July 1, 1988.
Since then, around five power policies have been implemented by various regimes, establishing 106 IPPs with lifetime tax exemption concessions.
The reports indicate that successive governments provided data on IPP tax exemptions in economic surveys until 2018-19. However, when the value of these exemptions increased, the disclosure was halted. The exemption figures were instead combined with those of other sectors, concealing them from the public.
According to renowned economist Dr. Hafeez Pasha, the value of these tax exemptions from the mid-1990s to 2017-18 was Rs1 trillion. He made this estimate as part of his research on the political economy of inequality in Pakistan.
Dr. Pasha’s report highlights that IPPs benefit from a favorable pricing mechanism, with power tariffs structured so that the government covers their capacity charges and fuel costs. This cost-plus pricing system has significantly reduced market risk for IPPs, even in cases of under-utilized capacity. Some IPPs have enjoyed returns on equity of 25-30% in various years.
This policy incentive triggered a surge in the establishment of IPPs in the country.
In the following two years, the exemption dropped to Rs18 billion between 2017 and 2019, without explanation from the government. In FY20, the exemptions swelled to Rs26.88 billion, rising significantly to Rs47.528 billion in FY21.
The increase in exemption value is attributed to the establishment of additional power plants. In FY22, the exemption decreased to Rs37.45 billion due to the PTI government’s renegotiation of IPP contracts.
The exemptions climbed to Rs56.02 billion in FY23 but reduced to Rs30.23 billion in FY24.
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