Extend income tax holiday period: Large power developers

The developers of four mega hydropower projects have sought five-year extension to the grace period for income tax holiday and VAT rebate on three construction materials -- penstock pipe, steel and cement. SN Power, GMR and Satluj Jal Vudyut Nigam (SJVN) have sought five additional years for tax holiday from the seven-year grace period that ends in mid-April 2019. Talking to this daily, Mukunda Paudyal, joint secretary of the Investment Board Nepal (IBN), said the issue of income tax holiday has stalled the process of signing Project Development Agreement (PDA), which is at final last stage, with four mega projects -- Arun III, Upper Marsyangdi, Upper Karnali and Tamakoshi III. The PDA is a definitive document that sets out all obligations by the government and the developer to ensure that the interests of both parties are protected and well served for the duration of the 30-35 year concession period. Taking into consideration the fact that these projects can´t be completed within 2019, the IBN has forwarded the power developers´ demand for grace period extension to its board. The government had announced seven-year grace period for income tax holiday through the annual budget two years ago. It had also discount 50 percent discount in income tax for the next three years for those hydro projects completing before mid-April 2019. It had also one percent customs duty and rebate of VAT on penstock pipe, steel and cement used for the projects. “The issue will be presented at the board meeting of IBN next week,” added Paudyal. The IBN Board is headed by Chairman of the Interim Election Council Khil Raj Regmi. The government had announced the tax holiday package three years ago in order to motivate the developers to complete projects in time, taking into consideration the deepening energy crisis in the country. Hydropower developers generally pay 20 percent income tax. India´s GMR is developing two of the four projects - Upper Marsyangdi (600 MW and Upper Karnali (900 MW), while SN Power and SJVN are developing Tamakoshi III (650 MW) and Arun III (900 MW), respectively. Paudyal said PDA talks with the developers will be completed within two months after the income tax holiday issue is sorted out. Earlier, the government had announced 10-year income tax holiday and 50 percent discount in income tax for another five years for projects completing within mid-April 2015. However, people in the hydropower sector had criticized the incentives, saying that it favored only the small power developers. According to Poudyal, the Arun III and Upper Karnali projects will enter the construction phase once the PDA is signed as both the projects, which are promoted by Indian firms, plan to sell power to India.