ISLAMABAD, AUGUST 20: In Pakistan, Independent Power Producers (IPPs) have benefited from significant tax deductions of Rs. 1.217 trillion between the mid-1990s and the fiscal year 2023–2024. According to Dawn’s report on Tuesday, these exclusions go beyond capacity payments, which are projected to total Rs. 2.091 trillion in the current fiscal year (2024–25).
This policy has been maintained by succeeding administrations, allowing 106 IPPs to get lifetime tax exemptions. By lowering market risks related to capacity underutilization, the policy has greatly benefited these businesses, enabling certain IPPs to see returns on equity of up to 25–30 percent for a number of years.
The tax breaks granted to IPPs between 2014 and 2016 were estimated to be worth Rs. 51.5 billion. Between 2017 and 2019, this amount fell to Rs. 18 billion, with no apparent reason given for the decline. Due to the addition of more power plants, the exemption value increased to Rs. 26.88 billion in FY20 and Rs. 47.528 billion in FY21.
Renegotiation of IPP contracts by the 2018–2022 government reduced the exemption to Rs. 37.45 billion in FY22; however, it increased to Rs. 56.02 billion in FY23 (the year Shehbaz Sharif took office) and then dropped to Rs. 30.23 billion in FY24.
While the value of these tax exemptions was revealed by economic surveys up until 2018–19, the increasing exemption amounts have been hidden by future governments combining this data with data from other industries. The exemption values increased to Rs. 56.02 billion in FY23 before falling to Rs. 30.23 billion in FY24, notwithstanding sporadic decreases.
