Promoters of hydropower projects have demanded discount on income tax, value-added tax (VAT), and customs duty due to the rise in cost of construction in recent times. The Energy Ministry and the Investment Board (IB) have already prepared modality for discount and sent the recommendations to the Finance Ministry to address their demands. Officials at the Energy Ministry and IB state that the Finance Ministry is positive about providing the discounts. The projects to be completed by 2023 will get full income tax waiver for 10 years and half for five years as per the recommendations while a grant of Rs 10 million per MW in VAT has also been recommended. The government will choose among the options of refund, grant and others as there cannot be discount on VAT. The government currently provides full income tax waiver for 10 years and half for five years for 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 duty for electromechanical equipment as they are not produced in Nepal.
It is the duty of the Finance Ministry to implement the discounts after recommendations from the bodies concerned. Domestic and foreign investors are certain about receiving discounts through the upcoming budget. The Energy Ministry had also recommended a discount of Rs 10 million per MW in civil construction of projects to the Finance Ministry even in the last year. The investors were deflated as the recommendation was not included in the budget. The hydropower sector is set to attract greater domestic and foreign investment as the projects will become financially lucrative if the discounts are announced in the budget. A study by IB also has showed that the internal rate of return of promoters will rise by three percent by merely providing VAT discount on materials for civil construction. PDA dialogue with four big projects with combined installed capacity of around 3050 MW has also been stalled due to the issue of discounts. Similarly, works of projects that are preparing to start construction have also been affected. The investors, therefore, are adopting the strategy of wait and watch for now.
The country is suffering from rising load-shedding in lack of development of adequate projects to generate electricity according to the demand. The investors are ready to invest on projects and are waiting for an appropriate environment. The government must create an environment of attracting additional investment in the hydropower sector by addressing the demands of tax discounts. Tax discounts will inject pace into the country’s economy in the long run through construction of many projects. Industrial productivity has suffered a huge blow in lack of adequate energy in the country. Load-shedding alone increased import by around Rs 30 billion in the last fiscal year, according to the government data and it is expected to rise to Rs 40 billion this year. The state must pay attention toward ridding the country of load-shedding by providing tax discounts instead of collecting tax for now at a time when the country is suffering from acute energy crisis. Not providing facilities to the projects by only looking to raise present revenue collection will be suicidal. The state must, therefore, provide tax discounts to rid the country of energy crisis.
Source : Karobar Daily / Editorial
