The International Monetary Fund (IMF) has agreed to let the Pakistan government reduce electricity tariffs after negotiations.
Both Pakistan’s economic team and the IMF delegation are carrying out discussions for the second tranche of over $1 billion under the $7 billion Extended Fund Facility (EFF).
During talks on tariff rebasing, the Ministry of Energy presented a proposal to cut base tariffs by up to Rs 2 per unit starting in April or May. IMF has given its approval, leaving the final decision to NEPRA and the Ministry of Energy.
Previously, the IMF turned down Pakistan’s request to remove the General Sales Tax (GST) on electricity bills. This move was intended to provide relief to millions of people of Pakistan, those suffering with high inflation with rising utility costs. However, the IMF refused to budge, adding the need for revenue collection and financial discipline.
No Extension for Winter Relief Package
In another setback, the IMF also rejected Pakistan’s request to extend the winter relief package for the industrial and agricultural sectors for the entire fiscal year. The relief package, initially introduced to lower energy costs for businesses and farmers, was designed to boost productivity and ease the financial burden on these critical sectors. Without an extension, industries may have to brace for higher energy costs, which could impact economic growth and job creation.
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Planned Tax Relief for Certain Sectors
Despite the IMF’s refusal on some fronts, the government is considering tax relief in specific areas. Sources indicate that the government is exploring reducing the tax burden on sectors such as:
Real Estate & Property – Encouraging investment in the housing sector.
Beverage & Tobacco Industries – Potential relaxation in taxation to support businesses.
Salaried Individuals – Easing income tax in the upcoming budget to provide relief to the working class.
Any tax changes, however, will require IMF’s final approval, as the lender maintains a strong influence over Pakistan’s financial policies.
Revenue Collection Plan & Circular Debt Concerns
To address financial challenges, the government has devised a plan to collect Rs. 250 billion in taxes from various sectors, including retail. This will be executed through:
Trader-friendly schemes to encourage voluntary tax compliance.
Compliance risk management to prevent tax evasion.
Administrative measures to ensure efficient tax collection.
Meanwhile, discussions with the IMF have also revolved around reducing the circular debt in the energy sector. Officials informed the IMF that Pakistan has finalized a Rs. 1.25 trillion loan from commercial banks at an interest rate of 10.8% to tackle the growing power sector debt.
While the government is striving to balance economic stability and public relief, the IMF’s firm stance highlights the ongoing financial challenges Pakistan must navigate in the coming months.