Miftah Ismail says fiscally possible to remove electricity taxes without disturbing primary surplus

Former finance minister and co-founder of the newly launched Awam Pakistan Party (APP) Miftah Ismail said Monday that removing taxes on electricity is possible in a “fiscally responsible” manner if the government is interested in offering relief to people. According to him, the reduction in revenue collection from eliminating taxes could be offset by reducing funds allocated to the Public Sector Development Programme (PSDP).

The former finance minister explained in a detailed post on X (formerly Twitter) that reducing electricity taxes could be easily accomplished without disturbing primary surplus and total deficit numbers. He said this arrangement can be acceptable to the International Monetary Fund (IMF).

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“In a typical domestic bill, the government adds 24% taxes to the electricity bill. It adds 37% percent taxes on commercial bills and 27% to industrial bills,” he explained.

There are four taxes imposed by the government on electricity bills: Extra tax, further tax, sales tax (18%), and advance income tax. He said that 7.5% advance income tax is charged to domestic customers, 12% to commercial consumers, and 5% to industrial customers.

According to the former finance minister, the total collection last year through these taxes was Rs388 billion, adding that this year the number will rise to Rs450 billion.

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Miftah Ismail said provinces charge “electricity duty” separately on top of these bills.

The former minister said that a reduction in the “electricity taxes for the whole year would decrease Rs450 billion in tax revenues, which would mean Rs265 billion less going to the provinces (they have more than enough money) and Rs185 billion less going to the federal government.”

Miftah Ismail asked the federal government to reduce PSDP expenditures by Rs185 billion and offset it through a reduction in PSDP funds.

Explaining the allocation of funds to PSDP, the former finance minister said last year, the government spent around Rs705 billion on the program.

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“In this year, where the government was asking for people to sacrifice and has chosen to tax the salaried class and professionals to the hilt,” he wrote.

If the government is willing to bring PSDP to Rs965 billion from this year’s approved Rs1150 billion then all taxes for consumers can be eliminated, he reasoned.

“I have given an easy and fiscally responsible way to substantially reduce bills and even increase excess power consumption,” he argued.

“It would be a shame if the government doesn’t act on it,” Miftah Ismail said.