Discount on tax, VAT, customs for hydroprojects

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    KATHMANDU, June 8

    mai hydro headworksThe government is preparing to provide discount on income tax, value-added tax (VAT), and customs duty for all kinds of small and big projects to be developed with domestic and foreign investment. The Energy Ministry and the Investment Board (IB) have separately recommended the Finance Ministry to provide discounts which will be provided to all the projects by incorporating those recommendations. The Finance Ministry seems to be positive toward tax discount due to the worsening energy crisis.

    The projects to be completed by 2023 will get full income tax waiver for 10 years and half for five years while the projects to be finished after 2023 will not be eligible for that. Similarly, a discount of Rs 10 million per MW has been recommended for VAT. The government will choose among the options of refund and others as there cannot be discount on VAT. Similarly, two percent of bonus will be imposed as per the Electricity Act. The government has provided full income tax waiver for 10 years and half for five years for projects to be completed by 2015. Similarly, full tax waiver for seven years and half for another three years have been provided for the projects to be completed by 2019. The law is silent about the tax discount for projects to be completed after 2019.

    Similarly, discount on customs duty has been recommended for import of cement, iron rods and other materials needed for construction of projects. But it has been recommended only if the materials are not produced in the country or are not produced in sufficient quantity. The Finance Ministry has been providing discount on customs for electromechanical equipment as they are not produced in Nepal. Chief Executive Officer (CEO) of IB Radhesh Pant reasons that such recommendation has been made as discount on income tax, VAT and customs duty has to be mentioned in the project development agreement (PDA) to be signed with promoters. He claimed that PDA will be signed with the promoters immediately after the budget announces the discounts.

    GMR and other promoters have demanded that the current income tax provision be maintained and VAT discount be provided on cement, rods and other construction materials. A study by IB also showed that the internal rate of return of promoters will rise by three percent by merely providing VAT discount on materials for civil construction. IB is currently holding PDA dialogue with four big projects with combined installed capacity of around 3050 MW. The Energy Ministry is also holding PDA dialogue with promoters of a few projects including Upper Trishuli I. IB holds PDA dialogue with projects of over 500 MW and the ministry for those below 500 MW. Recommendations have been sent to the Finance Ministry after the promoters demanded discount on income tax, VAT and customs duty during the ongoing PDA dialogue. The task force formed under Joint Secretary at the Energy Ministry Keshav Dhwaj Adhikari has already recommended to the Finance Ministry for VAT discount of Rs 10 million per MW.

    Construction of 900 MW Upper Karnali and 600 MW Upper Marsyangdi II (GMR of India), 900 MW Arun III (Sutlej of India), and 650 MW Tamakoshi III (SN Power of Norway) is being done through IB. It will be easier to do PDA with promoters of other projects if it is done for Upper Karnali. These projects are being developed in Build-Own-Operate-Transfer (BOOT) model. GMR has already agreed to provide 12 percent of free electricity and 27 percent of free equity from Upper Karnali while Sutlej has agreed to provide 21.9 percent of free electricity from Arun III.

    Banks invest on projects only after PDA is signed. The previous conditions will be applied for projects that have already done PDA even though there are changes in tax rate through acts and regulations.

    Source : Karobar Daily