IMF rejects govt proposal to cut sales tax on power bills

The Pakistani government has been unsuccessful in convincing the International Monetary Fund (IMF) to agree to a reduction in sales tax on electricity bills. According to sources, the IMF rejected a request from Pakistan’s Ministry of Energy, which had asked for a reduction in sales tax to alleviate the financial burden on consumers. The IMF’s decision came after the Ministry of Energy made a formal request to the Fund, seeking approval for a decrease in sales tax rates on electricity bills. (adsbygoogle = window.adsbygoogle || []).push({}); However, the IMF maintained that, under the current loan programme, no exemptions or reductions could be granted for new taxes. It was also clarified by IMF officials that reducing sales tax would hinder Pakistan’s ability to meet its tax collection targets. Currently, Pakistan imposes an 18% Goods and Services Tax (GST) twice on electricity bills. The first tax is applied to the total bill amount, while the second is levied on fuel cost adjustments. (adsbygoogle = window.adsbygoogle || []).push({}); Earlier, the federal government has made a key decision to meet another significant condition set by the IMF, agreeing to impose a levy on captive power plants before the release of the next tranche of funding. According to sources, the government has made preparations to implement this levy on captive power plants, which will be applied gradually to prevent a significant reduction in gas supply to these plants. Sources indicated that the IMF has shown flexibility on the issue of gas cuts to captive power plants, and the levy will be introduced before the next IMF tranche is disbursed. Moreover, the federal government has reached an agreement with the International Monetary Fund (IMF) to end the minimum support price (MSP) system for wheat. After the agreement, the minimum support price (MSP) of wheat would not be announced for 2025-26, sources said. Ministry of National Food Security and Research directed the provinces to submit their wheat food security suggestions based on their population. Separately, Prime Minister Shehbaz Sharif on Wednesday stressed the need to honour IMF commitments, insisting that the government could not bid farewell to the programme just yet. While talking to the business community at the Pakistan Stock Exchange, the premier said, “We need to honour IMF commitments – we can’t just say tata bye bye (dismiss the programme on a whim) once we take off. “We will say goodbye to it forever once the time is right,” he said. Regarding the business community’s role, the premier insisted that the government and the business leaders needed to “build their relationship to achieve those targets”, giving the example of their tax targets. “If you look at what IMF stated [their target as] 10.6 tax-to-GDP ratio, we have achieved 10.8,” he said. “It’s something to celebrate but this is not enough – this is just the beginning.” The premier insisted that there was a need for investment now, recounting that the State Bank of Pakistan’s (SBP) interest rate went from a record-high of 22 per cent to 13pc. “Investors here say there is still a gap of 8 points – I would want it to go to 6pc,” he stressed, “But it has to be done with an alert mind, with prudence, so we don’t get trapped in the future. “We have to move bravely but with caution,” he added. “Regarding that, how do we actualise export-led growth? Everyone says growth should be export-led, that FDI [foreign direct investment] should be export-led so that profits come and dollars are present so we can retain them – all very well said but I need tangible proposals on how to implement export-led growth.” The prime minister went on to compare Pakistan with Saudi Arabia “in a different context to the world”, highlighting that the country had mines and minerals while Saudi Arabia had “black gold”. PM Shehbaz insisted the country had to head towards growth, adding that he knew that critics often spoke about “the engine heating up” and “Pakistan heading towards a boom-bust cycle once again” when it came to pursuing growth. “A lot of experts have spoken and writers have written about it, but I invite you to come tell us what other way is there?” he rhetorically asked. On the privatisation issue, the premier said that the process had been entirely transparent, citing the example of Pakistan International Airlines (PIA) which the government failed to privatise in the first attempt. “The entire process was 100pc transparent just like Islamabad Airport, the privatisation process for which is about to be concluded in the next few days,” he said.