NBR reduces VAT on coal imports for power plants

The National Board of Revenue (NBR) has reduced the value added tax (VAT) on coal import for power generation by 5 percent from the existing 15 percent for five years till June 2025 to allow electricity generation at lower cost, sources said.

The exemption is being offered at a time when three coal-fired power plants are being established in the public sector. Of these, Payra 1320MW power plant of Patuakhali is likely to start generating its first unit with capacity of 660 megawatts of electricity this month. Besides, four private sector coal-based power plants are in the process of being implemented.

A huge amount of coal would be required once these power plants go into operation. The NBR said there were no customs and other duty for coal import.

After the VAT cut to 5 percent, a 5 percent advance tax and 5 percent advance income tax will still be applicable for private sector power plants. However public sector power plants will need to pay only the 5 percent VAT to import coal, said an NBR official requesting anonymity.

An official said that to get the reduced vat rate the traders must submit a letter to customs declaring they would use the fuel only for power generation. Importers, who import coal for other purposes, have to pay regular 15% VAT, the SRO elaborates.

The government cut the VAT at a time when three coal-based power plants in public sector and four in private sector were under construction and expected to go for production soon, said a senior NBR official. The tax authority earlier provided duty benefit for the import of furnace oil, which is used in electricity generation, and liquefied natural gas. The NBR in July 2013 offered a 15-year tax waiver for electricity generation with coal.

Companies that will sign contracts with the government by June 30, 2020 to establish coal power plants will receive the tax break on income from electricity generation, according to the notification issued at that time.