Ongoing Tax Breaks for IPPs Prompt Discussion

At a time when the government is striving to widen its tax base and ease the burden on ordinary citizens, the tax breaks being enjoyed by the Independent Power Producers (IPPs) can be seen as a concerning issue and have sparked a heated debate among economists. The tax breaks being given to Independent Power Producers (IPPs) could be necessary to stabilize the energy sector in Pakistan, but now, as the burden of taxes on ordinary citizens grows, many are questioning about this tax exemption policy of Independent Power Producers (IPPs) being levied by the government since decades.

It has been reported by Dawn that a total of Rs 1.217 trillion amount of tax breaks have been given by the government to these Independent Power Producers (IPPs) from the mid-1990s to the year 2023-24. Even this tax exemption for these IPPs exceeds the amount of capacity payments given to them by the government. It should be noted that these IPPs are governed by 40 different influential families from Pakistan.

As per the official records being reported by Dawn, the government kept on providing details about these tax breaks being given to IPPs until 2018–19 in the economic surveys, but since then, the government has not disclosed any information regarding this due to the increase in value of tax exemption. Dr. Hafeez Pasha, a well-known economist of Pakistan, depicted that the value of these tax exemptions was amounted to Rs 1 trillion from the mid-1990s to 2017-18.

As per Dawn, 10 new IPPs were established during the autocratic rule of Gen Pervez Musharraf. Furthermore, during the PPP regime, from 2008 to 2013, 10 more IPPs were introduced to generate electricity. Moreover, during PMLN regime, from 2013-2018, the number increased and a total of 55 new IPPs were installed. Then, during the tenure of PTI and PDM, from 2018-2023, 40 more IPPs were being set up.

It is pertinent to mention here that as per data from economic surveys, it has been deduced that the total tax exemption amount for IPPs from 2014 to 2016 has been amounted to Rs 51.5 billion. And if we talk about the capacity payments, then in FY 2025, it amounts to be around Rs 2 trillion. Thus, understanding the scale of tax breaks given to IPPs is crucial for evaluating their overall effect on the economy.

While these incentives may have played a crucial role in stabilizing the energy sector in the past, the current economic landscape calls for a reassessment. In this process, we have the chance to not only maintain stability in our power supply but also create a more resilient economy that benefits everyone.