IPPs Have Received Over Rs. 1.2 Trillion in Tax Relief While Power Consumers Suffer

Independent Power Producers (IPPs) in Pakistan have enjoyed substantial tax exemptions to the tune of Rs. 1.217 trillion from the mid-1990s to the fiscal year 2023-24. These exemptions extend beyond capacity payments, which are estimated to reach Rs. 2.091 trillion in the current fiscal year (2024-25), Dawn reported on Tuesday. Successive governments have continued this policy which allowed 106 IPPs lifetime tax exemptions. The policy has significantly favored these companies by reducing market risks associated with capacity under-utilization, allowing some IPPs to enjoy returns on equity as high as 25-30 percent for several years. Between 2014 and 2016, tax exemptions for IPPs were valued at approximately Rs. 51.5 billion. This figure dropped to Rs. 18 billion between 2017 and 2019, with no clear explanation provided for the decrease. The exemption value surged to Rs. 26.88 billion in FY20 and further to Rs. 47.528 billion in FY21, driven by the establishment of more power plants. The 2018-2022 government’s renegotiation of IPP contracts brought the exemption down to Rs. 37.45 billion in FY22, but it climbed again to Rs. 56.02 billion in FY23, when Shehbaz Sharif first came to power, before declining to Rs. 30.23 billion in FY24. Although economic surveys disclosed the value of these tax breaks until 2018-19, subsequent governments have combined this data with other sectors to obscure the growing exemption amounts. Despite occasional drops in the exemption values, they reached Rs. 56.02 billion in FY23 before declining to Rs. 30.23 billion in FY24.