ISLAMABAD: The Private Power and Infrastructure Board (PPIB) has stated that if Saif Power Limited (SPL) believes the notices issued by tax authorities and/or the ruling of the Appellate Tribunal Inland Revenue (ATIR) reflect an incorrect interpretation of the applicable law, it may pursue legal remedies available under relevant laws.In a written response to Business Recorder, PPIB said the company had informed it that, following the ATIR’s decision in the case of Lucky Electric Power Company Ltd. v. Commissioner Inland Revenue (ITA No. 1064/KB/2025), SPL received show-cause notices seeking amendments to its assessments for previous tax years.According to PPIB, the proposed amendments are based on the interpretation that Capacity Purchase Price (CPP) constitutes passive income and therefore does not qualify for exemption under Clause 132 of Part I of the Second Schedule to the Income Tax Ordinance, 2001 (ITO 2001). Additionally, the Federal Board of Revenue (FBR) has treated Delayed Payment Interest (DPI) as taxable.READ MORE: IPP deals: Saif Power approves revised agreements with govtThe company argued that this revised interpretation departs from the long-standing and consistently applied understanding of the exemption provision, under which CPP, DPI, and Energy Purchase Price (EPP) have historically been treated as exempt from income tax since the inception of the IPP regime.The SPL has requested PPIB to intervene and coordinate with FBR, CPPA-G, and the Ministry of Energy (Power Division) to ensure alignment with the agreed policy and contractual framework and to mitigate potential claims under the “Change in Tax” provisions of the Power Purchase Agreement (PPA).The PPIB noted that to attract private investment in Pakistan’s power sector, the Government of Pakistan promulgated various power generation policies, including those of 1994, 2002, and 2015.At the time of these policies, income tax exemption under Clause 132 of Part I of the Second Schedule to the ITO 2001 was extended to IPPs. This concession was incorporated into project agreements, including Power Purchase Agreements (PPAs) and Implementation Agreements (IAs).Clause 132 of Part I of the Second Schedule to the ITO 2001 provides exemption for profits and gains derived by a taxpayer from an electric power generation project set up in Pakistan on or after July 1, 1988, subject to specified conditions.Under Clause 15 (“Fiscal Incentives”) of the Power Generation Policy 2015, the exemption under Clause 132 remains available to new IPPs, public-private partnership projects, and expansions of existing projects.Section 9.1 (“Taxation of the Company”) of the Implementation Agreement provides that during the term of the agreement, the company shall not be subject to taxation in Pakistan on profits and gains derived from electric power generation under the PPA, as provided under Clause 132 of Part I of the Second Schedule to the ITO 2001.However, it also stipulates that any change in Clause 132 or its application shall not constitute a breach or default by the Government of Pakistan, provided such change results in a tariff adjustment as set out in the PPA.The PPA defines “Change in Tax” as the adoption, enactment, amendment, reinterpretation, or change in application of any tax law by a Public Sector Entity after the agreement date, read with Article 14 of the PPA.The PPIB stated that matters relating to “Change in Tax” fall within the ambit of the PPA. The company has requested CPPA-G to confirm that any additional tax demand would qualify as a “Change in Tax” under the PPA. SPL has indicated that if such a demand materializes, it will issue a formal Change in Tax notice under Section 14.3 of the PPA.The company maintains that the “Change in Tax” clause is broadly worded and includes reinterpretation or revised application of tax laws by a Public Sector Entity, which would qualify as a direct pass-through under Section 14.4 of the PPA. It has asked CPPA-G to acknowledge this interpretation and engage relevant stakeholders to avoid triggering the contractual mechanism.However, PPIB emphasized that, under the PPIB Act, 2012, it does not have the mandate to interpret legislation such as the Income Tax Ordinance or to opine on the interpretation of Clause 132 of Part I of the Second Schedule. It further noted that the Implementation Agreement dated January 25, 2017, provides that any change in Clause 132 or its application shall not constitute a breach or default by the Government of Pakistan, so long as it results in a tariff adjustment under the PPA. The “Change in Tax” regime, it said, is governed by Article 14 of the PPA and falls within the jurisdiction of the power purchaser.Accordingly, it is for the power purchaser to determine whether a “Change in Tax” has occurred and whether any costs have been incurred by the company within the meaning of the PPA. PPIB also observed that the matter remains premature, as all legal remedies available to the company have not yet been exhausted and no conclusive determination has been made by the power purchaser. “We understand that this issue has arisen as a result of the interpretation and application of certain provisions of the Income Tax Ordinance by the Appellate Tribunal Inland Revenue in ITA No. 1064/KB/2025 in respect of another power company. If the company considers that notices issued by tax authorities and/or the ATIR ruling reflect an incorrect interpretation of applicable law, it may seek legal remedies available to it under the applicable laws,” the PPIB concluded.Copyright Business Recorder, 2026
