Import of machinery above $50 million: govt may extend concession to power projects

[Naveed Yaseen]

MUSHTAQ GHUMMAN
ISLAMABAD (October 26 2009): The government is likely to extend more concessions to power sector projects on imported machinery worth $50 million or above despite the fact that this facility was misused in the past, sources in Industries Ministry told Business Recorder.

"Industries Ministry supports the investment, provided it is not at the cost of local industry. In the 2007-08 budget the condition 'if not manufactured locally' was excluded from the SRO to the extent of imported plant, machinery and equipment for value above $50 million. This facility was provided to encourage investment, but it was reportedly massively misused," sources said.

Prior to the 2008-09 budget, there were apprehensions that import of plant, machinery, equipment and capital goods at concessionary rate of 5 percent customs duty and free of sales tax could harm the local industry.

However, these concessions were restricted to such machinery, which was not manufactured locally. In the 2008-09 budget, under a conscientious policy to attract, incentivise and facilitate investment, the condition of local manufacturing was de-linked for such new industrial projects which would import plant, machinery, equipment and other capital goods worth $50 million and above. The said measure was implemented through SRO 554(1)/2008 by amending SRO 575(1)12006.

While implementing the measures, due to the expression "setting up of new industrial projects", an issue has arisen as to whether the announced concession can also be applied to the import of plant, machinery and other capital goods for such on-going new industrial projects for which LCs were established prior to the issuance of SRO 554(1)/2008, on June 11, 2008 but shipments for such projects were made prior as well as after the said date.

The approval of the Cabinet through which the said measure was implemented does not reflect whether these concessions can also be availed by the on-going new industrial projects for which LCs were established prior to the issuance of the SRO and whose shipments were continuing.

Certain power projects (Atlas Power, Foundation Power, Sapphire Electric) have approached the FBR for extending the benefits of concessions on their partial shipments made after the issuance of SRO 5 54(1)/2008.

Supporting the proposals of the three power sector projects, the FBR stated that as the government encourages investment, particularly in the power sector, FBR has proposed that scope of concession should also be extended to the ongoing new projects where the LC was opened prior to the issuance of SRO 554(I)/2008, and the LC value of the partial shipment of machinery and equipment arriving after the issuance of the said SRO is $50 million or above.

This value does not include the value of shipments which had already arrived prior to the issuance of this notification. The proposal has been circulated to Ministry of Finance, Ministry of Industries, Ministry of Commerce, Ministry of Investment and Ministry of Water & Power.

Sources said all Ministries have supported the proposal. Industries Ministry has, however, proposed that cables, wires, pipes and other auxiliary equipment should not be made part of the concession plan.

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