ISLAMABAD: While taxpayers face escalating tax rates, it has been revealed that Independent Power Producers (IPPs) have received significant tax breaks amounting to Rs1.217 trillion from the mid-1990s through the 2023-24 fiscal year, according to official sources.
These tax exemptions for IPPs surpass the anticipated capacity payments, which are projected to reach Rs2.091 trillion in the current fiscal year. The IPPs, which are linked to 40 influential families with connections to power corridors, benefit from corporate tax exemptions on profits from power plants established after July 1, 1988.
Since then, successive governments, both democratic and autocratic, have introduced approximately five power policies that established 106 IPPs with lifetime tax exemptions.
Capacity Payments Expected to Exceed Rs2 Trillion in FY25
Official records show that while successive governments disclosed tax exemption data for IPPs up until 2018-19, this practice ceased when the value of these exemptions increased. Since then, this data has been merged with other sectors to obscure it from public view.
Economist Dr. Hafeez Pasha, in his research on Pakistan’s political economy, estimated that the value of tax exemptions for IPPs from the mid-1990s to 2017-18 was around Rs1 trillion. Dr. Pasha highlighted that IPPs benefit from a pricing mechanism where the government covers their capacity charges and fuel costs, significantly reducing market risk and allowing some IPPs to achieve returns on equity of 25-30% in various years.
The favorable policy environment led to a surge in IPP establishments. Between 1988 and 2002, five major IPPs were established, with only the Hub Power Company continuing to benefit from concessions. During General Pervez Musharraf’s tenure (2002-2008), 10 new IPPs were set up, followed by another 10 during the PPP government (2008-2013). The PML-N administration (2013-2018) saw the establishment of 55 new power plants, and between 2018 and 2023, 40 more were added under the PTI and PDM governments.
Tax exemptions for IPPs totaled approximately Rs51.5 billion from 2014 to 2016. This figure dropped to Rs18 billion from 2017 to 2019, with no official explanation for the decrease. Exemptions then increased to Rs26.88 billion in FY20 and surged to Rs47.528 billion in FY21, reflecting the rise in power plant establishments. The exemption amount fell to Rs37.45 billion in FY22 due to contract renegotiations by the PTI government but rose again to Rs56.02 billion in FY23 before decreasing to Rs30.23 billion in FY24.
