Before the passage of the Finance Act 2019, the Income Tax Ordinance, 2001 (ITO) required Independent Power Producers (IPPs) to withhold tax at the concessional rate of 7.5% on dividends paid by them to shareholders. Depending on the terms of the concession documents of IPPs and tariff determinations issued by the National Electric Power Regulatory Authority (NEPRA), withholding tax on dividends was either treated as a pass-through item or borne by the IPP’s shareholder at the rate of 7.5%.
The Finance Act 2019 amended the ITO by enhancing the rate of withholding tax to 25% for those IPPs whose concession documents did not expressly allow withholding tax to be treated as a pass-through item. This change affected many IPPs, irrespective of the power policy under which they were established, their generation technology or whether their shareholders are local or foreign. We have advised numerous IPPs on addressing the increase in withholding tax and have undertaken advocacy on their behalf with relevant GOP entities. We are continuing to advise them on a strategy for achieving a lasting settlement of this issue.
The team advising on this matter was led by Senior Partner Hasnain Naqvee.
For further details on this matter, please see https://www.brecorder.com/news/10000090
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