Ip Ps Related Legal Provisions In

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Ip Ps Related Legal Provisions In

  1. 1. IPPs RELATED LEGAL PROVISIONS IN INCOME TAX ORDINANCE, 2001 SALES TAX ACT, 1990 WPPF WWF ORDINANCE BY SYED MUHAMMAD IJAZ, FCA, LLB M Yousaf Adil Saleem & Co. a member firm of Deloitte Touché Tohmatsu
  2. 2. INCOME TAX ORDINANCE, 2001
  3. 3. Clause 132 Part I of 2nd Schedule Profits and gains derived by a taxpayer from an electric power generation project set up in Pakistan on or after the 1st day of July, 1988. The exemption under this clause shall apply to such project which is- a) not formed by the splitting up, or the reconstruction or reconstitution, of a business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business; and b) owned by a company fifty per cent of whose shares are not held by the Federal Government or Provincial Government or a 1[Local Government] or which is not controlled by the Federal Government or a Provincial Government or a [Local Government]: c) Provided that the condition laid down in sub-clause (a) shall not apply to the Hub Power Company Limited [Provided further the exemption under this clause shall not apply to oil fired power plants setup [between 22nd October, 2002 and 30th June, 2006] but shall apply to Dual Fuel (Oil/Gas) power projects set up on or after the first September, 2005] Provided further that the exemption under this clause shall be available to companies registered in Pakistan or Azad Jammu and Kashmir owning and managing Hydel Power Projects, set up in Azad Jammu and Kashmir or Pakistan.]
  4. 4. Clause 20 Part II of 2nd Schedule The rates of tax as specified in clause (b) of Division-III of Part-I of First Schedule shall be reduced to 7.5% in case of dividend declared or distributed on shares of a company set up for power generation.]
  5. 5. Provisions incorporated through Finance Act, 2009 ACCELERATED DEPRECIATION TO ALTERNATE ENERGY PROJECTS. [Section 23B, section 57 and Third Schedule]- A new section 23A has been inserted whereby First Year Allowance (FYA) at the rate of 90% of the cost of plant, machinery and equipment has been allowed. The plant, machinery and equipment has to be installed in Pakistan by a company set up for the purpose of alternate energy power generation. The FYA will be allowed in lieu of initial allowance allowed u/s 23 in respect of “eligible depreciation assets” put to use after July 01, 2009. This has been done to encourage investment in this sector both by residents and non-residents. The amendment has also been made in section 57 to allow carry forward of losses for indefinite period.
  6. 6. Kot Addu shall continue to enjoy exemption under clause 138 Companies qualifying for exemption u/c 132 of this schedule in respect of receipts from the sale of electricity (still available) The corporatized entities of Wapda so far as they relate to their receipts on account of Sales of electricity
  7. 7. The Legal Position Section 23 read with 57 and third Schedule vs clause 132 of Part II of 2nd Schedule 132 to applicable to power projects It is not applicable to Oil fired Plants setup [between 22nd October, 2002 and 30th June, 2006 shall apply to Dual Fuel (Oil/Gas) power projects set up on or after the first September, 2005] 2nd Proviso vs the power plants-the legal position? Other provisions i.e. Single Object of memorandum etc
  8. 8. SALES TAX
  9. 9. Special rules for supply of Electric Power chapter III to Sales Tax Special Procedure 2007 1% special excise is not applicable by virtue of Sr. 11 of SRO 655(I)/2007 as amended to date (Federal Excise Act) SRO 603(I)/2009 dated 25-6-2009 withholding rules applicable to LTU cases will also apply to IPPs
  10. 10. Refund Rules are applicable to IPPs due to change in section 8B(2) by finance Act, 2009 Table 2 Clause 6 of 6th schedule i.e. Supply of fixed assets against which input tax adjustment is not available under a notification issued in terms of clause (b) of sub-section (1) of section 8 of the Sales Tax Act, 1990. Table 2 Clause 4 of 6th schedule i.e. Raw material and intermediary goods manufactured or produced, and services provided or rendered, by a registered person, consumed in-house for the manufacture of goods subject to sales tax. (units used in power house)
  11. 11. Chapter III to Sales Tax Special Procedures 2007 11. Application.—The provisions of this Chapter shall apply for Collection and payment of sales tax on electric power imported, generated, produced, transmitted and supplied by electricity generation, transmission and distribution companies licensed under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997), including their distributors, dealers and agents, or by any other person dealing in importation, generation, production, transmission, distribution and supply of electric power.
  12. 12. Mandatory registration u/s/r 14 of Chapter III of Sales Tax Special Procedures 13. Levy and collection of sales tax.— (1) Every person, referred to in the preceding rule, who supplies electric power shall charge and collect sales tax at the rate specified in sub-section (1) of section 3 of the Act. Stages of collection defined u/s/r 2 to rule 13 of Chapter III- See Responsibility of payment in next slide Value of Supply: In case of an IPP, HUBCO or KAPCO, the value of supply shall be the amount received by such IPP or, as the case may be, HUBCO or KAPCO, on account of Energy Purchase Price only and any amount in excess of Energy Purchase Price received on account of Capacity Purchase Price, Energy Price Premium, Excess Bonus, Supplemental Charges, etc., shall not be deemed as a component of the value of supply:
  13. 13. (a) in case of its importation, the responsibility to pay sales tax shall be of the importer, and the value thereof shall be the value as determined under section 25 or, as the case may be, section 25B of the Customs Act, 1969 (IV of 1969), including the amount of customs-duties and duty of excise duties levied thereon; and (b) in case of generation, transmission, distribution and supply of electric power by a public sector project like WAPDA a private sector project including an IPP, a Captive Power Unit or any other person, the responsibility to collect sales tax shall be of the person making the supply, and the value shall be the price of electric power including all charges, surcharges excluding the amount of late payment surcharge, rents, commissions and all duties and taxes whether local, Provincial or Federal, but excluding the amount of sales tax, as provided in clause (46) of section 2 of the Act8[: Provided that in case of electric power supplied by WAPDA, the additional charge of Rs. 0.10 per kwh, collected on account of Neelum Jehlum Hydro Power Development Fund shall not be included in value for determination of sales tax payable.] (3) In case of an IPP, HUBCO or KAPCO, the value of supply shall be the amount received by such IPP or, as the case may be, HUBCO or KAPCO, on account of Energy Purchase Price only and any amount in excess of Energy Purchase Price received on account of Capacity Purchase Price, Energy Price Premium, Excess Bonus, Supplemental Charges, etc., shall not be deemed as a component of the value of supply: Provided that in case WAPDA or KESC disputes any amount, WAPDA or, as the case may be, KESC, shall issue a certificate showing such amount and the tax involved therein and such certificate shall be deemed to be a Credit Note for the IPP for the purposes of section 9 of the Act, and shall be accounted for in the return for the tax period in which such Credit Note is issued:
  14. 14. Date of Filing WAPDA and KESC-21st day of the month following the month in which the electric power bill or invoice has been raised. In case of an IPP, the due date for the purpose of filing monthly sales tax return and for payment of sales tax shall be the 25th day of the month following the month to which the sales tax invoice relates. Any person other than an IPP, WAPDA or KESC who supplies electric power shall file a monthly sales tax return under section 26 of the Act and Chapter II of the Sales Tax Rules, 2006, and deposit the amount of sales tax payable for the tax period by the due date.
  15. 15. Determination of sales tax liability in respect of WAPDA and KESC.— entitled to claim admissible input tax adjustment in the manner specified in section 7 of the Act, read with sections 8 and 8B thereof. WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their taxable purchases made in the month immediately preceding the tax period.
  16. 16. 16. Input tax adjustment for registered consumers.— power bill issued by electric power distribution company shall be treated as a tax invoice as defined in clause (40) of section 2 of the Act. registered consumers shall be entitled to claim input tax adjustment against such invoice after the bill has been paid, as per the provisions of section 7, 8 and 8B of the Act provided the bill contains registration number and address of the business premises declared to the Collector by such consumer.
  17. 17. Books of Account shall maintain records as prescribed under section 22 of the Act or a notification issued there under. shall print in his bill or invoice, as the case may be, registration number of the consumer, if applicable, the rate and the amount of sales tax required to be charged by him under sub-section (1) of section 3 of the Act. may issue a computer generated sales tax invoice and keep his record on the computer in the prescribed format.
  18. 18. 18. Penalty.—Non-issuance of electric power bill for a tax period-be liable to penalties under the relevant provisions of the Act. If the tax is not paid within the due date or in the manner as provided under this Chapter, the registered person shall be liable to pay default surcharge and such other penalties prescribed in the Act.
  19. 19. WWF & WPPF
  20. 20. WWF Industrial Establishment Definition of total Income Intention of Legislature/promulgation Definition of worker/Legal Opinion Matter subjudice before a court of law Applicability to workers of workers community or specifically working in industrial under takings Charging sections-basis of
  21. 21. THE MAGIC TERMS in details
  22. 22. Industrial Establishment i. Any concern owning or managing a factory, workshop or other establishment in which articles are produced, adapted or manufactured with the aid of electrical, mechanical, thermal, nuclear or any other form of energy transmitted mechanically and not generated by human or animal agency; ii. Any concern working a mine or quarry or natural gas or oilfield; iii. Any concern running a public transport service iv. Any concern engaged in the carriage of men and goods by inland mechanically propelled vessels; Iva) Any establishment, to which the West Pakistan Shops and Establishment Ordinance, 1969 (W.P. Ordinance No. VIII of 1969), for the time being applies; v. Any concern engaged in the growing of tea, coffee, rubber or cinchona; and vi. Any other concern or establishment which the federal government may, by notification in the Official Gazette, declare to be an industrial establishment for the purposes of this ordinance, But does not include any concern or establishment which is owned by government, or by corporation established by the Government or by a Corporation the majority of the shares of which is owned by government.
  23. 23. Total Income i. Where return of income is required to be filed under this Ordinance, the profit (before taxation or provision for taxation) as per accounts or the declared income as per the return of Income, which ever is higher; and ii. Where return of Income is not required to be filed, the profit (before taxation or provision for taxation) as per accounts or four percent of the receipt as per the statement filed under section 115 of the Ordinance, whichever is higher
  24. 24. The Charging Provisions- Section 4 2% of total income by every industrial establishment with total income greater than Rs. 500,000/- To be paid to taxation officer having jurisdiction over industrial establishment Payable on or before the date of filing of returns of income with proof of payment Taxation officer shall determine the amount of WWF by order in writing Any amount payable or refundable due to such order is adjustable under subsection 1 Any amount determined in access of what was required to be paid as a result of Appeal shall be refunded Provisions of the Income Tax Ordinance for mode and time of recovery of the Income tax leviable under the Ordinance shall mutatis mutandis apply to recovery of amount due under subsection 1 Appeals against the order of taxation officers can be filed before the Commissioner of appeals appointed under the Ordinance
  25. 25. Further amount -section 4A Federal Govt. by notification in official gazette and by appointment of one or more committees on recommendation can in addition to the amount payable under section 4 for any year of account can determine such amount as may be recommended by such committees Committees have to examine individually the financial reasons and circumstances for each industrial undertaking Can call such information as they deem necessary If no such information is furnished by the industrial undertaking the committee can recommend of the basis of available information
  26. 26. Liability to be discharged by certain persons- Section 5 Person who is liable to pay Income tax in respect of the Income relatable to such industrial establishment U/s 13 Federal Government can reduce or remit the amount due through a notification in Official Gazette
  27. 27. WORKER’S PROFIT PARTICIPATION FUND
  28. 28. Definitions Company; Means a company as defined under Companies Ordinance 1984 And Includes A body Corporate established by or under any law for the time being inforce; Any institution, organization or association whether incorporated or not, declared by Federal Government in the Official Gazette to be a company for the purposes of this Act; Profits As defined u/s 87C of companies Act-Since companies Act is not more there and in 1984’s Ordinance Net profits are not defined there this definition is redundant Worker Employee of the company including through contractor as defined under clause xxx of section 2 of the Industrial relations Ordinance, 2002
  29. 29. The charging provision-Section 3 Company to which scheme applies shall has to establish fund u/s 3 as soon as the accounts of the year in which the scheme become applicable are finalized but not later than 9 months from the close of the year Pay to fund subject to adjustment Not later than 9 months of close of the year 5% of its profits Furnish audited accounts to Federal Government and the Board
  30. 30. Management of Fund-Section 4 Board of trustee-establish within 2 months of establishment of fund Two persons elected by workers amongst themselves Two being nominated by the company one of whom shall be from accounts branch of the company Trustees shall elect for one year a person to be the chairman-alternatively amongst the trustees Procedures of the Board are defined u/s/s 3 to 11
  31. 31. Penalty-Section 5 Federal Govt. on default of the company can charge Rs. 5000 and Rs. 1000 for each day of default if the default continues Penalty if not paid is recoverable like a land revenue On application within a period of 6months from the date of order Federal Govt. can review the order If any defaulting employer complies strictly to the scheme and provisions so far as they are applicable then notwithstanding any thing contained in this act or scheme, penalty cannot be charged neither the company is liable to pay interest as provided in the scheme
  32. 32. Powers with the Federal Govt To call for information Settlement of disputes Delegation of powers Power to make rules Act to override other laws
  33. 33. The scheme This scheme shall apply to all companies engaged in industrial undertakings which satisfy any one of the following condition, and to such other companies as the Federal Govt. may, by notifications in the official gazette, specify in this behalf, namely:- The number of workers employed by the company at any time during a year is 50 or more The paid up capital of the company as on the last day of its accounting year is Rs. 5 m (Rs 2 M before 2006’s change) or more The value of fixed assets of the company at cost as on the last day of the accounting year is Rs. 20m (Rs. 4m before the change ) or more
  34. 34. Industrial undertaking means an institution, organization, enterprises or establishment which involves the use of electrical, mechanical, thermal, nuclear or any other form of energy transmitted mechanically and not generated by human or animal agency and which is engaged in any one or more of the following operations; i. …. ii. …. iii. The transformers, generation, conversion, transmission or distribution or electrical energy, including hydraulic power; and iv. ….. v.
  35. 35. Legal preposition Reading application of scheme with definition of industrial undertaking Remember any one condition has to met They are generating energy-The definition Have more than 5 m paid up cap-Condition Have more than 20 m cost of assets-Condition Even if workers clause is not met above 2 will be met in most cases
  36. 36. Fund is available for investment is company’s operations Company shall pay interest 2.5% above bank rate or 75 percent of dividend’s rate which ever is higher Incase the company issues further capital the fund shall have the first option
  37. 37. Distribution & Disbursement of Benefits All workers are eligible to benefits and to participate however he has to complete 6 months of employment in a year for eligibility Shares of workers shall be calculated in number of units with a face value of Rs. 10 Be divided into three parts for three categories of workers Category 1(Average monthly salary not exceeding Rs. 7500)= 4 * x Category 2 (Average monthly salary Exceeding 7500 but not Rs. 15000)= 2 * x Category 3 (Average monthly salary Exceeding 15000)= x Monthly salary be rounded to the nearest 10 Number of units available for each category be divided equally in all workers of that category No worker shall be allowed to get more than four times of the minimum wages of unskilled worker notwithstanding any thing contained in this scheme
  38. 38. Distribution 100% of annual income of fund +capital gains A worker who voluntarily leaves employement or terminated one 100% of net assets value in his name For continuing workers its choice for them to get their 100% share in assets every year to leave them invested Incase of retirement or death while in employment will receive 100% in net assets in his name Voluntary contributions can be made not exceeding 10% of their annual wages
  39. 39. Misc Fund is Exempt from Income tax (clause 9) Allowable deduction in Income tax-for companies (clause 8) Income of workers are Income tax exempt (clause 10) Audit (clause 12) This shall be in addition to other benefits that may be available to workers

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