The Pakistani government has failed in its attempt to persuade the International Monetary Fund (IMF) to reduce the sales tax on electricity bills.
Sources revealed that the IMF rejected a request from Pakistan’s Ministry of Energy, which sought a reduction in the sales tax to ease the financial strain on consumers. The Ministry had formally asked the IMF to approve a decrease in the sales tax rates on electricity bills, but the IMF stood firm on its position.
IMF officials explained that under the terms of the current loan agreement, no exemptions or reductions could be made for new taxes. They also pointed out that cutting the sales tax would undermine Pakistan’s ability to meet its tax collection targets.
Currently, Pakistan applies an 18% Goods and Services Tax (GST) twice on electricity bills. The first tax is applied to the total bill, while the second is added to fuel cost adjustments.
In another development, the federal government has agreed to impose a levy on captive power plants, fulfilling another key condition set by the IMF before the release of the next funding tranche. This levy will be gradually implemented to avoid significant disruptions to the gas supply to these plants.
The IMF has shown some flexibility regarding the gas cuts for captive power plants, and the levy is expected to be introduced before the disbursement of the next IMF tranche.
