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Amid ongoing economic review discussions between Pakistan and the International Monetary Fund (IMF), a proposal aimed at reducing electricity prices by eliminating the General Sales Tax (GST) on electricity bills has been rejected.
As, the ongoing talks between Pakistan and the IMF are in progress, with a key focus on addressing the issue of circular debt in the energy sector.
According to sources, the IMF has refused to extend the winter relief package for the industrial and agricultural sectors beyond the current fiscal period. Additionally, a proposal to provide relief to electricity consumers by removing GST from their bills has been turned down.
Reports indicate that relief measures for the real estate, property, beverage, and tobacco sectors are under consideration. Furthermore, the government is exploring the possibility of reducing the tax burden on the salaried class in the upcoming budget, subject to IMF approval. Should the IMF consent, tax reductions in these sectors will be implemented accordingly.
In an effort to enhance tax collection, authorities are planning to generate Rs 250 billion in revenue from various sectors, including retail. This will be achieved through trader-friendly schemes, compliance risk management, and administrative measures. However, all these steps require final approval from the IMF.
The IMF has been informed that Pakistan intends to secure a Rs 1,250 billion loan from commercial banks at an interest rate of 10.8% to manage circular debt. The agreement on this matter has been finalized.
Meanwhile, net metering consumers should prepare for a significant reduction in tariffs for electricity supplied to the grid. The government has shared an important power purchase plan with the IMF, proposing changes that could impact net metering users.
The IMF has also expressed dissatisfaction over the continued exemption of gas tariffs for captive power plants, urging the government to impose the tariffs without further delay.
The negotiations between the Pakistani government and the IMF remain ongoing. While the IMF has rejected the removal of GST from electricity bills, discussions suggest that net metering consumers may face a considerable reduction in the rate at which their electricity is purchased.
Sources indicate that under the government’s proposed plan, the purchase price for electricity generated by net metering consumers will be reduced to Rs 10 per unit. Previously, this electricity was being bought at Rs 27 per unit. However, the new plan, shared with the IMF, suggests a reduction of Rs 17 per unit.
Additionally, the IMF has raised concerns about how the government plans to address the issue of off-grid consumers disconnecting from the national grid. The government has yet to provide a concrete solution or a clear response on this matter. Discussions regarding power companies are also ongoing.
Moreover, the IMF has urged Pakistan to allocate financial resources toward reducing circular debt.
The global financial institution has also voiced its dissatisfaction with the lack of gas tariffs on captive power plants, reiterating its demand for immediate implementation.
Negotiations between various ministries and IMF representatives continue. During the discussions, the Petroleum Division assured IMF officials that the gas tariff would be applied retroactively from January 1. However, the IMF raised concerns that implementing the tariff with a backdated notification could lead to legal challenges, instead urging the government to impose the tariff immediately.
The IMF has also instructed the government to enforce a grid transition levy on captive power plants, while simultaneously acknowledging Pakistan’s efforts to control circular debt in the power sector.
In a separate development, the Power Division has shared its strategy for addressing circular debt. According to officials, the government plans to borrow Rs 1,200 billion from banks, of which Rs 300 billion will be allocated for debt settlement. Additionally, approximately Rs 600 billion will be cleared by waiving late payment surcharges.
Officials further disclosed that to repay the bank loans, a surcharge of Rs 2.80 per unit will be added to electricity bills over the next five years. Moreover, the introduction of a fixed tax scheme for retailers in the upcoming budget is under consideration.
The IMF has also urged the Federal Board of Revenue (FBR) to expedite its transformation plan and take strict action against the illegal tobacco market.
Meanwhile, discussions between Pakistani authorities and the IMF have also covered the Benazir Income Support Program (BISP). Other topics under review include governance, domestic financing operations, and the privatization of state-owned enterprises, including Pakistan International Airlines (PIA).
Additionally, today, officials from the Law Ministry and the National Accountability Bureau (NAB) are scheduled to hold talks on the implementation of Supreme Court directives regarding NAB reforms. The IMF has officially requested a report on the progress of these reforms.
