ISLAMABAD: The Independent Power Producers (IPPs), including those established under the China-Pakistan Economic Corridor (CPEC), are reportedly in a state of alarm over a reported reinterpretation of the Income Tax Ordinance (ITO), with one Chinese company claiming a financial exposure of over Rs 42 billion. In a letter to the Managing Director of the Private Power and Infrastructure Board (PPIB), Chief Executive Officer of China Power Hub Generation Company (CPHGC), Shi Zhenxing, stated that as the principal government body mandated to facilitate and safeguard private power investment, PPIB’s urgent intervention was required in light of recent developments concerning the interpretation of income tax applicable to IPPs. According to the letter, following a ruling by the Appellate Tribunal Inland Revenue (ATIR) in the case of Lucky Electric Power Company Ltd. v. Commissioner Inland Revenue (ITA No. 1064/ KB/ 2025), CPHGC has received show-cause notices proposing amendments to its tax assessments for Tax Years 2020, 2021, 2023, 2024 and 2025. READ MORE: Chinese IPPs face Rs500bn in unpaid dues The notices contend that Capacity Purchase Price (CPP) is not exempt from income tax under Clause 132 of Part I of the Second Schedule to the Income Tax Ordinance, 2001. Additionally, the Federal Board of Revenue (FBR) has reportedly declared Delayed Payment Interest (DPI) as non-exempt from income tax, resulting in a total exposure of Rs 42.145 billion for the company. The company maintains that this development overturns the long-established interpretation under which CPP, DPI and Energy Purchase Price (EPP) had consistently been treated as exempt from income tax since the inception of the IPP regime. In its detailed submissions, CPHGC stated that the National Electric Power Regulatory Authority (Nepra) issued an upfront tariff for coal-based power generation projects on June 26, 2014. Based on this tariff, Hub Power Company applied for and was granted a Letter of Intent (LoI) by PPIB on June 29, 2015. The Power Policy 2015 was subsequently notified on April 3, 2015. The policy aimed to bridge the electricity demand-supply gap and attract foreign investment. Its security package included a Government of Pakistan payment guarantee to the power purchaser and exemption from income tax under the ITO, 2001. CPHGC stated that it unconditionally accepted the revised upfront tariff and was issued a reference tariff on February 12, 2016. PPIB subsequently issued a Letter of Support (LoS) on April 12, 2016, which was extended from time to time. The company later executed a Power Purchase Agreement (PPA) with the Central Power Purchasing Agency–Guaranteed (CPPA-G) and an Implementation Agreement (IA) with the President of Pakistan on January 25, 2017. These agreements locked in the reference tariff for 30 years, subject to adjustments and indexation in accordance with the tariff structure, which comprises EPP and CPP as outlined in Schedule 1 of the PPA. Relying on the LoI, reference tariff, LoS, PPA and IA, CPHGC achieved its Commercial Operations Date (COD) on August 17, 2019, and has since been supplying electricity to the national grid. The company stated that under the prevailing regime and established interpretation of exemptions under the ITO, 2001, it consistently filed income tax returns without receiving any notice questioning the exemption status of CPP and DPI until the ATIR ruling in ITA No. 1064/ KB/ 2025. Following the ruling, CPHGC received notices under Section 122 (9) read with Section 122 (5A) of the ITO, 2001, seeking amendment of assessments on the grounds that CPP and DPI are not exempt under the Second Schedule of the ordinance. The company argues that this reinterpretation constitutes a “change in tax” under the PPA framework and has come as a surprise to the entire IPP sector. It warned that the move raises serious concerns regarding the sanctity of contracts and the predictability and stability of government policy, potentially eroding the Return on Equity (RoE), which is protected under contractual pass-through mechanisms in the event of changes in law or taxation. “This reinterpretation by the FBR would not have any net impact on government revenues, as the amounts would ultimately have to be reimbursed by another government entity, namely CPPA-G,” the CEO stated. However, he cautioned that it sends a negative signal to domestic and international investors regarding policy consistency and enforcement of agreed contractual frameworks. The company has sought urgent and decisive intervention from PPIB, requesting it to engage with relevant stakeholders, including the FBR, CPPA-G and the Ministry of Energy (Power Division), to halt what it termed contradictory tax assessments and reaffirm the government’s commitment to the settled fiscal and contractual framework. CPHGC warned that failure to address the issue could erode investor confidence and trigger lengthy and avoidable pass-through claims under the “change in tax” provisions of the PPA. Copyright Business Recorder, 2026