Islamabad: The International Monetary Fund (IMF) has raised objections to Prime Minister Shehbaz Sharif’s Rs200 billion package aimed at reducing the power tariff for industrial consumers by Rs10.69 per unit. Additionally, the IMF did not endorse the government’s proposal to impose a wealth tax on all types of assets, including bank balances.
Sources indicate that the government proposed a 0.1% wealth tax on all assets, including bank balances and shares, and a 0.5% wealth tax on assets declared in wealth statements by taxpayers. However, the IMF objected to including bank balances in the wealth tax, leading to concerns that the revenue impact of the remaining assets might not be substantial enough to introduce the wealth tax.
In light of the IMF’s stance, the government is reconsidering the wealth tax proposal. Instead, it is looking for alternative measures to reduce the tax burden on specific sectors without taxing pesticides, fertilizers, and regions like the erstwhile Federally-Administered Tribal Areas.
The IMF also requested more clarifications regarding the Prime Minister's decision to reduce the power rate for industries by Rs10.69 per unit. Government sources noted that the IMF viewed the package as a means to provide hidden subsidies to industries, which would consequently increase the financial burden on residential consumers.
The IMF Resident Representative, Esther Perez, did not comment on whether the IMF was consulted before the package was announced. Meanwhile, the government has allocated Rs120 billion in the budget to finance the relief package for the next fiscal year and plans to recover the remaining amount from residential, commercial, and industrial consumers through fixed electricity charges.
The IMF previously objected to reducing electricity prices for industries in February. The IMF Mission Chief to Pakistan, Nathan Porter, had expressed concerns that the industrial tariff reduction plan did not address underlying issues and questioned the circular debt neutrality of the tariff rationalisation plan.
The industrialists have also expressed dissatisfaction with the package, arguing that the fixed electricity surcharges imposed by the government would significantly increase their costs. They highlighted that the fixed charges of Rs2,000 per kW per month would result in a substantial financial burden, especially for factories operating at reduced capacities.
The National Electric Power Regulatory Authority (NEPRA) has introduced fixed monthly charges for domestic, commercial, and industrial consumers. Domestic consumers will face fixed charges ranging from Rs200 to Rs1,000 per month based on their consumption. Commercial consumers will see significant increases in their fixed charges, with a 300% hike for those using less than 5kW and a 355% increase for those using 5kW or more.
The IMF has also taken a firm stance on the pricing of gas for in-house power plants of industries, seeking significant price increases to ensure full cost recovery of imported LNG. The IMF proposed raising current prices to Rs3,600 per mmbtu or cutting gas supplies, a move the government has resisted.
