Indian company Bharat Heavy Electricals Ltd (BHEL), the contractor for the 1,320-MW coal-based power plant under construction in Rampal, is going to get a tax exemption for bringing machinery and equipment for the plant. The decision was taken during a meeting at the finance ministry on Sunday. Finance minister Abul Maal Abdul Muhith presided over the meeting.The National Board of Revenue (NBR) will approve the move in favour of BHEL and the owner of the plant, Bangladesh-India Friendship Power Co. Ltd (BIFPCL), very soon, said sources present at the meeting. BIFPCL was earlier exempted from paying VAT for 10 years as it was implementing a fast-track project of the government. The Bangladesh Power Development Board (BPDB) and the National Thermal Power Co. Ltd (NTPC) have equal ownership in the BIFPCL.
BIFPCL selected BHEL as the contractor in March this year. The Indian Exim Bank has given primary consent to granting a loan for the project. NBR officials, however, pointed out that BIFPCL was earlier given a VAT exemption. Now, if a contractor of this company gets another tax exemption, other companies implementing large projects in Bangladesh would also want the same favour from the NBR and the government would lose a huge amount of tax money in the process, they said.
A senior official of the Power Division, however, argued that if a tax is imposed on bringing machinery and equipment for the power plant, it would jack up the electricity production cost. BIFPCL will realise that money later. In March, BIFPCL and BHEL had applied for tax exemption on machinery and equipment for the Tk. 14,999-crore project. Letters were sent to the Power Division, the finance minister and the NBR to grant the application. The NBR rejected it, saying it had already exempted VAT for the next 10 years and some other taxes too. However, the Power Division sent a letter to the NBR on March 30, asking it to take the application into consideration. Later, the three parties held several meetings and finally, on April 26, a letter signed by the second secretary (tax exemption) of the NBR, Mohammad Kamal Hossain, said the board was reviewing the letter.
However, it said that according to the Income Tax Act, 1984, tax at source is imposed on the contractor’s (BHEL) bill. Hence, the NBR could not exempt tax on the machinery and equipment because it would be brought in by BHEL. The letter also pointed out that two Statutory Regulation Orders (SROs) had already been issued, giving several tax benefits to the company. Nasrul Hamid, state minister for power, energy and mineral resources, drew Prime Minister Sheikh Hasina’s attention to the issue at a meeting. Under her directions, the finance ministry meeting took place on Sunday.
After the meeting, Hamid explained to journalists that BHEL is not only a contractor in the project but also an investor. Besides, the machinery will not be imported by BHEL, but rather by BIFPCL. So, according to the agreement, BIFPCL should be granted a tax exemption. The finance ministry and the NBR have given their consent to the exemption, Hamid said. NBR chairman Md Nazibur Rahman said they have to go through certain processes to provide tax exemption at source on the bill of machinery and equipment for the power plant. A senior official of BIFPCL explained that the tax exemption issue is relevant to the Engineering, Procurement and Constructing (EPC) contract. The BPDB and NTPC signed a MoU in 2010 for the construction of the Rampal power plant. The projected cost of the coal-based super critical power plant is Tk. 14,999 crore. Of that, BPDB will provide Tk. 4,500 crore from its own funds. The rest of the money will be collected as a loan from India’s Exim Bank. The tentative completion date of the plant is June 2021.