Dar-led panel to craft power tariff cut strategy

ISLAMABAD: Prime Minister Shehbaz Sharif has constituted a seven-member committee to finalize plans to set power tariff by lowering taxes in the light of discussions with the International Monetary Fund (IMF), well-informed sources told Business Recorder.

Headed by Deputy Prime Minister Senator Ishaq Dar, the committee assigned the task consisted of Minister for Economic Affairs, Ahad Khan Cheema, Finance Minister, Senator Muhammad Aurangzeb, Power Minister, Awais Leghari, Secretary Power, Dr. Muhammad Fakhr e Alam Irfan, Secretary Petroleum, Momin Agha and Chairman FBR, Rashid Langrial.

The proposal under consideration is reduction in taxes from January to June 2025. However, Finance Division has conveyed that the proposed elimination of various federal (Divisible Pool) and provincial taxes on sale of electricity with an estimated revenue impact of Rs 290 billion (about one billion dollar) during January-July 2025, will adversely impact GoP’s commitment with regard to tax revenue collection, overall primary and fiscal balance and provincial surplus under the Extended Fund Facility (EFF).

PM orders reduction in power tariffs

Finance Division has advised Power Division to share the proposal with the Revenue Division/FBR as well as the provinces, before proceeding further in the matter.

The sources said financial impact of taxes on electricity bills is Rs 9 per unit, which are hitting the consumers. Chairman Federal Board of Revenue, Rashid Langrial, as Secretary Power had opposed recovery of taxes through Discos.

The Terms and Reference (ToRs) of the Committee are as follows:

(i) to firm up the proposal of power tariff reduction by means of lowering taxes in the light of discussion with IMF;

(ii) to engage and negotiate with stakeholders, including Provincial Governments, Petroleum Division and FBR to develop internal consensus on the proposal; and

(iii) share the proposal with the IMF and seek its approval before passing on the relief to consumers.

The Committee constituted on December 16, 2024 has been given one-week time to finalize its recommendations for the Prime Minister.

According to official documents, total financial impact of taxes on consumers’ bills is Rs 964 billion, of which federal share is Rs 391 billion whereas provincial share is Rs 563 billion.

Of Rs 954 billion, impact of sales tax is Rs 708 billion, income tax, Rs 98 billion, advance income tax 4 billion, further sales tax Rs 13 billion, extra sales tax, Rs 54 billion, retail sales tax, Rs 9 billion, electricity duty Rs 53 billion and PTV fee Rs 14 billion.

The government is collecting GST at Rs 18 per cent, income tax 10 per cent if bill is Rs 500-20,000(Rs 1950 + 12 per cent if Rs 20,000), advance income tax(non-filers) 7.5 per cent if bill is Rs 25,000, further sales tax, Rs 4 per cent (for inactive consumer) extra sales tax (5 per cent to 17 per cent for inactive), retailer sales tax (7.5 per cent if bill is Rs 20,000), Electricity Duty 0-1.5 per cent and PTV fee, Rs 35 to 60.

The sources said the government is expecting reasonable reduction in electricity bills, if all its plans materialize which include cancellation of pacts with 5 IPPs (which are already approved), revision of baggasse-fired plants (already signed), conversion of 17 IPPs on take any pay mode (finalized), reduction in taxes on electricity bills and re-profiling of debts of Chinese power projects (under process).

Copyright Business Recorder, 2024