EDITORIAL: Spontaneous resistance to the July electricity bills, as opposed to a politically engineered resistance to the rising cost of living, compelled the caretaker prime minister to call a cabinet meeting on Sunday and direct the Power Division to propose concrete measures in the next 48 hours to reduce electricity bills.
Two observations are in order. First, while the Caretaker Prime Minister’s response to the widespread anger is understandable, yet it is what one would have expected from a political government and not one installed to bridge the time period between the end of tenure of an elected government and the installation of the next elected government whenever general elections are finally held.
The objective of a visibly empowered caretaker cabinet was to take economic decisions premised on economic as opposed to political considerations, including approval of contractual obligations with foreign investors under the auspices of the Special Investment Facilitation Council (SIFC) purported to be the engine that would take the economy out of the current economic impasse.
One can only hope that valuable lessons will be drawn by the SIFC from the power sector which agreed to contractual obligations with the Independent Power Producers (IPPs) on the assumption that Pakistan was not an attractive investment destination that is the root cause of the crisis today which include: (i) capacity charges even in winter when demand slumps which has raised the per unit cost throughout the year; (ii) payments to be made in dollars and with the prevailing disorderly foreign exchange market conditions tariffs are prohibitively high; (iii) establishing power plants reliant on imported fuel for which foreign exchange reserves have to be healthier than they are at present even after the previous government signed off on the Stand-By Arrangement; (iv) theft and transmission losses due to an antiquated network; (v) high receivables from federal and provincial departments; (vi) a continuation of the flawed policy of administrations, past and present, to rely on revenue sources that represent ease of collection and needless to add a tax slapped in an electricity bill is the easiest to collect.
In this context, it is relevant to note that the August bills included general sales tax, (at the standard rate of 17 percent), television fee (35 rupees) and FC Surcharge; and (vii) as per a Ministry of Energy document, the power sector provides free electricity to 189,000 government employees across the country, with a collective consumption of 34 crore units annually that cost the sector more than Rs 8 billion – a cost which is projected to rise to 11.5 billion rupees in the current year.
At present, one unit of electricity costs PKR 51.50 of which taxes, surcharges and prior adjustments are 31 percent. Another 31 percent represents unutilised capacity payments, cross-subsidy element in cost is 13 percent, transmission and distribution loss 13 percent and fuel cost 1 percent.
Second, the caretakers appear to be focused on (vi) and (vii) or slashing taxes for the lower income groups (premised on per unit monthly consumption) and ending free units for those with incomes above a certain level.
It is baffling to note that the Caretaker Prime Minister reportedly gave the direction only to Power Division to propose concrete measures to reduce electricity bills and not to the Finance Minister as any reduction in taxes is likely to impact on the revenue agreed under the ongoing Stand-By Arrangement with the IMF, which would necessitate higher taxes.
The Federal Board of Revenue operates under the administrative control of the Ministry of Finance and with almost 80 percent reliance of total tax collections on indirect taxes, whose incidence on the poor is greater than on the rich, any reduction in taxes on electricity would imply raising revenue from other sources.
And if as is the past precedence, existing taxes on goods are raised the public may well come out on the streets in protest against the rising cost of living.
The Caretaker Prime Minister further stated that no action will be taken in haste which can harm the country – a statement reminiscent of an elected government; one would hope that politics may be set aside and a more pragmatic economically viable policy, though perhaps politically not so feasible, be supported notably a massive reduction in current expenditure that would reduce the need to raise taxes with a reduction in taxes on electricity and at the same time clip elite capture of annual budgetary allocations, defined as not only powerful landlords, and industrialists but also public-sector stakeholders.
And it is hoped that the caretakers decide to implement the decision to devolve all ministries as per the 18th Amendment, currently costing the treasury a hefty amount.
Copyright Business Recorder, 2023