Sunday, May 3, 2009

Bill proposes seven-year tax holiday for hydro projects

THIRA L BHUSAL

KATHMANDU, May 2: The Ministry of Water Resources (MoWR) has proposed the government to give tax holiday for seven years for hydropower promoters. The ministry has also recommended to the government to give 50 percent tax exemption to the hydropower producers for another three years.

The ministry has recently registered a bill to this effect in the parliament. Once the House passes the bill, it will be enforced as an act. However, independent power producers from the private sector are not satisfied with the government offer. They have demanded that the government provide total tax exemption for at least 10 years with effect from the date a project starts commercial generation.

The Electricity Act-1992 had a provision of 15 years of tax holiday for hydropower producers. The provision was later annulled through a financial bill.

The independent producers have argued that they should be given tax exemption for at least 10 years as the promoters get no return during the construction phase and have to continuously pay bank interests for seven to 15 years.

The Independent Power Producers´ Association, Nepal (IPPAN), on Wednesday submitted a list of their demands and recommendations to the ministry, according to Executive Director of IPPAN Pradeep Gangol.

"We have filed a list of our recommendations to the ministry, requesting the government to make amendments to the bill and introduce an investment-friendly policy through the upcoming budget," Gangol told myrepublica.com.

He argued that the government should be ready to provide tax holiday for at least 10 years, if it wanted to attain its target of producing 10,000 MW of hydropower in 10 years.

The bill proposes that the tax holiday will be effective only until 2019 April. But the promoters urged the government not to impose the time limit.

The investors have urged the government to ensure that they faced no hindrances from other acts and authorities like finance, industry, commerce, forest and environment.

"We proposed this to maintain policy consistency for at least 10 years, which is essential to attract domestic as well as foreign investment to the sector," Gangol said.
The investors have also demanded exemption on excise duty and local development tax, among other duties and charges, arguing that these were additional burdens for the promoters who already bear geological, hydrological and other risks to start a project.

Total VAT exemption in purchasing equipment, spare parts and other construction materials including cement, rods, fuel, lubricants, copper, aluminum etc is another demand of the promoters. They have asked the government to charge only one percent of customs charge. "Investors will not come to Nepal if we cannot ensure these things," Gangol said.

The government while unveiling the budget for current fiscal year had announced VAT exemption in purchasing equipment and other goods for electromechanical portion of a hydropower project.

The promoters have also objected to the proposed provision that says a project´s license holders should provide bonus to its employees and workers at a tune of two percent of the project´s taxable income each year.

"Larger projects will have to spend a big amount if this provision is not scrapped. It is impractical in case of larger projects," said an investor.

Likewise, the producers have strongly objected to a new provision on capacity royalty in the bill. "A provision about capacity royalty has increased the charges extraordinarily," the investor said.

A 15-megawatt hydro-project promoter has to pay about Rs 247 million as capacity royalty as per the existing act while it will go up to Rs 1.04 billion once the proposed bill comes into effect.

This provision will hit mainly small-scale hydro-projects hard and eventually domestic as well as international investors will shy away from investing money in the sector, argued another producer.

Likewise, they have suggested the government to "directly or indirectly prohibit foreign investment in small projects generating up to five MW so as to encourage domestic promoters in such ventures."

thira@myrepublica.com


Published on 2009-05-02 00:00:03
http://www.myrepublica.com/portal/index.php?action=news_details&news_id=4558

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