Tax waiver issue delays contract signing
KATHMANDU, APR 16 – With the selected consultant for the Tanahu Hydropower Project demanding income tax exemption during ongoing negotiations before signing a contract, the Nepal Electricity Authority (NEA) has said that the government cannot provide the facility as the current tax law does not allow it.
The NEA clarified the tax issue in the letters sent to the joint-venture of Germany’s Lahmeyer International and Canada’s Manitoba Hydro, selected as consultant and main financer by the ADB. Without being able to sign the contract, the project construction work has been delayed.
According to Mukesh Kafle, managing director at the Nepal Electricity Authority, the ADB and the consultant both want income tax exemption. “We clarified that the current income tax act does not allow us to give tax exemption to the consultant. We answered them after consulting the Finance Ministry,” said Kafle.
The state-owned power utility body has asked the ADB and the selected consultant to clarify their stance on the tax issue.
“We had cleared our position earlier as well. However, they have once again expressed dissatisfaction over our position. Sensing possible deadlock, we have asked them to clarify their stance within 15 days,” Kafle said.
According to a source at the ADB, the deal hangs on the issue of taxation for all other issues have more or less been settled.
“Local tax system is quite complex in every country, and we are expecting that the consultants and the Tahanum Hydropower Limited would clarify what taxes are applicable to which entities and experts under which transactions, and negotiate which parties should bear the identified taxes, in accordance with the local tax law and the Request for Proposal (RFP),” said an official of the ADB. “For example, whether or not non-resident experts are levied income tax in
the country of non-residence varies in different countries.”
This now depends on negotitations and the proposed talks outcome is subject to ADB’s review and endorsement as per the loan agreement, and we look forward to seeing the proposed outcome as soon as possible.”
According to the ADB source, the donor agency would have no problem provided that the project and consultant agree on the terms and conditions.
As per an NEA official, ADB and the proposed consultant have also been asked to figure out alternative measures.
On January, a cabinet meeting had ended the deadlock regarding the controversy over consultant selection by overturning the decision of the Energy Ministry.
The Finance Ministry had scrapped the consultant appointment process of the project after the ADB selected the aforementioned company as consultant, which invited a cold war between the main project donor and the Energy Ministry.
