Cash incentive instead of tax discount for hydroprojects

The government is preparing to give cash incentive at a time when the private sector has been demanding tax discount in development of infrastructure projects including hydropower projects.

The government has moved this concept of cash incentive forward through the upcoming budget stating that the established system is disrupted while providing discount directly in revenue and tax. The government says the facility will be implemented through the upcoming budget especially targeting the private investors who are working for development of hydropower sector. “The private sector has demanded for discount on value-added tax (VAT) for up to Rs 10 million but monitoring that will be difficult. The private sector later may also demand VAT and tax discount for other sectors as well,” Vice Chairman of the National Planning Commission (NPC) Professor Govinda Raj Pokharel said. “Providing cash incentive after completion of the project will be more effective in all respects instead of harming the taxation system,” he reasoned. He said that the government bodies are holding discussions about that and the issue will be included in the budget after formal decision. He revealed that the government is mulling about providing cash incentive of Rs 10-15 million to the promoters completing hydropower projects within five years to address the energy crisis.

The private sector has also said it will accept the cash incentive likely to be given. “We have also been discussing especially about tax discount in different stages with the government bodies. We have no issues about paying tax as it is an internationally accepted thing. But the tax rate to be imposed on the private sector has to be scientific and the cash incentive should instill enthusiasm in the developers,” President of the Independent Power Producers’ Association, Nepal (IPPAN) Khadga Bahadur Bista said. The private developers currently are paying tax to the state especially for contracts, construction materials, consultancy services and others.

The recommendations made by the Energy Ministry and the Investment Board (IB) to the Finance Ministry for discount on income tax, VAT and customs duty look set to be ignored with NPC preparing to provide cash incentive by continuing the process of levying tax as it is. All the under-construction projects will get cash incentive of Rs 10-15 million per MW as a lump sum after completion of the project instead of tax discount, according to Pokharel.

The Energy Ministry and IB had proposed full income tax waiver for 10 years and half for five years for the projects to be completed by 2023. But the projects to be finished after 2023 would not have been eligible for that, as per the proposals. This time limit will be applied even for the cash incentive, according to NPC sources that revealed that appropriate provisions will also be made about bonus and other issues after holding discussions.

The government has provided full income tax waiver for 10 years and half for five years for projects to be completed by 2015. Similarly, full tax waiver for seven years and half for another three years have been provided for the 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 also been providing discount on customs for electromechanical equipment as they are not produced in Nepal.

Source : Karobar Daily