ISLAMABAD: Independent Power Producers (IPPs) have expressed serious concern over the reinterpretation of provisions in the Income Tax Ordinance 2001 (ITO), warning that the move could significantly impact the power sector by altering the long-standing tax treatment of capacity payments and introducing minimum tax liabilities.
Following China Power Hub Generation Company and Engro Powergen, Saif Power Limited (SPL) has also approached authorities seeking clarity and resolution on the issue.
In a letter to the government, SPL referred to its earlier communication dated February 17, 2026, highlighting pending sales tax refunds and requesting expedited processing to maintain cash flow ahead of the summer season. The company warned that the revised interpretation could materially alter the fiscal framework underpinning its Power Purchase Agreement (PPA) signed on April 30, 2007, and the Master Agreement (MA) dated February 11, 2021.
The matter stems from a recent ruling by the Appellate Tribunal Inland Revenue (ATIR) in the case of Lucky Electric Power Company vs Commissioner Inland Revenue (ITA No. 1064/KB/2025), which reinterpreted Clause 132 of Part I of the Second Schedule to the Income Tax Ordinance.
According to SPL, the ruling effectively removes the long-standing income tax exemption historically applied to capacity payments, a practice consistently followed across the IPP sector since its inception.
As a result, the company received a notice under Section 122(9) of the ordinance for Tax Year 2024, proposing amendments to completed tax assessments by imposing minimum tax on annual turnover.
SPL said it fundamentally disagrees with the proposed treatment and plans to challenge the notices through appropriate statutory and judicial forums. The company argued that the reinterpretation contradicts sovereign commitments and the fiscal framework outlined in its Implementation Agreement (IA) signed on July 13, 2007, which formed the basis of the investment decision.
The company further stated that under the PPA, any reinterpretation or modification of tax laws by a public sector entity qualifies as a “Change in Tax” event. If the tribunal’s interpretation is upheld, any additional tax on capacity payments or minimum tax on turnover would fall under this clause.
Under Article 14 of the PPA, such costs would be treated as pass-through charges recoverable from the power purchaser, Central Power Purchasing Agency Guarantee Limited (CPPA-G).
SPL warned that this would ultimately increase electricity tariffs for consumers without generating net fiscal benefit for the government. Instead, the additional burden could worsen affordability issues, reduce electricity demand and aggravate the country’s circular debt problem.
The company has urged the Private Power and Infrastructure Board (PPIB), in coordination with the Federal Board of Revenue (FBR) and the Ministry of Energy Power Division, to engage with stakeholders and resolve the issue to safeguard investor confidence and maintain contractual sanctity in Pakistan’s power sector.
Story by Mushtaq Ghumman
