Tax incentives for Upper Karnali can’t be decided before budget

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    KATHMANDU, Jan 4:

    Upper Karnali HEP
    Karnali River

    Government officials have clarified that demand for tax exemption and concession put forth by GMR ITD Consortium, the developer of Upper Karnali Hydropower Project, can be considered only in the next budget speech.

    In the recent negotiation for Project Development Agreement (PDA), GMR ITD Consortium officials had demanded that the government levy only one percent import duty on construction materials and provide them exemption on VAT.

    Similarly, they had sought income tax exemption for first seven years of power generation and 50 percent concession in income tax for the next three years.
    Upper Karnali Hydropower Project is the first export-oriented project that has reached the final stage of PDA.

    Government sources say the Investment Board Nepal (IBN) is likely to inform the consortium that it demands can be considered in the budget for 2014/15 only in the next meeting of PDA negotiation.

    The third round of PDA negotiations is scheduled to be held in Kathmandu on January 12 and 13.
    IBN is the authorized government body to hold PDA negotiations for projects above 500 MW.

    Sources at IBN told Republic that discussions were underway to propose VAT concession on amounts per MW basis. “But nothing has been decided yet,” the officials said.
    The consortium comprises GMR Infrastructure, GMR Energy and ITD — a joint venture of Thai and Italian firms.

    Along with the aforesaid demands, the GMR ITD Consortium had also sought incentives enjoyed by projects being developed for domestic consumption. For such projects, the government levies only one percent import duty on construction materials and provided VAT rebate of Rs 1 million per MW.

    Likewise, domestic developers are enjoying other incentives like 100 percent income tax exemption for first ten years and 50 percent exemption for the next five years for projects to be completed by mid-July 2014. Similarly, projects slated to be completed by mid-July 2018 enjoy 100 percent tax exemption for first seven years and 50 percent for the next three years.

    The provision of income tax exemption was endorsed as part of the Load-shedding Minimization Program of the government that encourages developers to complete projects within the scheduled date.

    Existing law provisions 20 percent income tax for hydropower projects.
    Meanwhile, Nepal has sought detailed social benefit plan from the consortium. Similarly, the consortium has plans to allot 27 percent free shares that the government is getting.
    The consortium is giving Nepal 27 percent of the shares and 12 percent of the power generated by it free of the cost.

    IBN sources say they are yet to discuss the share allotment plan.
    The government officials are still clueless about the power purchase proposal made by the consortium. “In the last round of meeting, the developer had said that the priority will be given to Nepal,” the source said.

    The executive board of Nepal Electricity Authority (NEA) recently decided to pay a maximum of Rs 10.60 per unit for dry months from 2020 onwards. However, it is not clear whether the tariff is also for Upper Karnali Hydropower Project or not.

    Source : Republica