ISLAMABAD: The country’s Independent Power Producers (IPPs) are raising concerns over the reinterpretation of the Income Tax Ordinance (ITO), warning that it could have significant financial implications, particularly regarding capacity payments and the levy of minimum tax, potentially exposing the power sector to unwarranted financial risk. Following China Power Hub Generation Company (CPHGC), Engro Powergen, etc, Saif Power Limited (SPL) has also approached the relevant authorities, seeking resolution of the issue arising from the revised interpretation of the ITO. In a letter to the government, SPL referred to its earlier communication dated February 17, 2026, in which the company highlighted its pending sales tax refund and requested expedited processing to maintain healthy cash flows ahead of the summer season. READ MORE: Reinterpretation of ITO ‘rattles’ IPPs The company stated that the reinterpretation would not only affect the taxation structure applicable to IPPs but would also materially alter the fiscal framework underpinning the Power Purchase Agreement (PPA) of April 30, 2007, and the Master Agreement (MA) of February 11, 2021. The issue stems from a revised interpretation by a public sector entity regarding the treatment of income tax on revenues earned by IPPs. Given the Private Power and Infrastructure Board’s (PPIB) statutory mandate and its understanding of the contractual, financial, and reputational implications of such developments, SPL requested PPIB’s timely intervention and facilitative support to safeguard investor confidence, particularly among foreign investors. The company noted that capitalized terms used but not otherwise defined would carry the meanings assigned to them in the PPA. The Appellate Tribunal Inland Revenue (ATIR), in the case of Lucky Electric Power Company vs Commissioner Inland Revenue (ITA No. 1064/KB/2025), recently issued a ruling reinterpreting the scope and application of Clause 132 of Part I of the Second Schedule to the Income Tax Ordinance, 2001. “The effect of this ruling is to deny the long-standing income tax exemption historically applicable to capacity payments — a treatment consistently followed across the IPP sector since its inception,” the CFO of SPL stated in the letter. As a direct consequence of the ruling, the company said it received a notice dated February 23, 2026, under Section 122(9) of the Income Tax Ordinance, 2001, for Tax Year 2024. The notice proposes to amend completed assessments by imposing minimum tax on the company’s annual turnover. “The company fundamentally disagrees with this position and intends to challenge these notices robustly before the appropriate statutory and judicial forums,” the CFO stated. “The proposed treatment is inconsistent with the sovereign commitments and agreed fiscal framework reflected in the Implementation Agreement (IA) dated July 13, 2007, and the PPA, which formed the basis of the company’s investment decision.” The company further stated that under its rights and remedies, a “Change in Tax” as defined in Article 1 of the PPA expressly includes any reinterpretation, change in application, or modification by a Public Sector Entity (PSE) after the agreement date concerning any tax laws of Pakistan. Accordingly, a tribunal’s reinterpretation that departs from a previously settled understanding constitutes a “Change in Tax” under the PPA. Therefore, any departure from the established understanding that capacity payments are exempt from income tax, or the imposition of minimum tax on IPPs’ turnover, would represent a material change in law and qualify as a Change in Tax event under the PPA. “Should this reinterpretation ultimately be upheld and applied to the Company or other IPPs, any resulting income tax on capacity payments or levy of minimum tax on annual turnover would constitute a Change in Tax event. In such circumstances, the Company would be entitled to relief pursuant to Article 14 of the PPA, and any resulting cost would qualify as a direct pass-through item recoverable from the Power Purchaser (CPPA-G),” the CFO said. According to the company, any additional tax collected by the Federal Board of Revenue (FBR) would effectively be passed through to CPPA-G, yielding no net fiscal benefit to the Government of Pakistan. Instead, it could adversely affect the economy, as higher taxation on IPPs would ultimately increase electricity tariffs for consumers, impact affordability and grid demand, and potentially worsen the circular debt situation — undermining recent government efforts to contain it. The SPL has urged PPIB, in coordination with CPPA-G and the Ministry of Energy (Power Division), to proactively engage with FBR and other stakeholders to address the matter and protect the power sector from unwarranted exposure. The company and its shareholders reaffirmed their commitment to a constructive and amicable resolution, while emphasizing the importance of maintaining investor confidence and preserving contractual sanctity. Copyright Business Recorder, 2026