The International Monetary Fund (IMF) on Thursday again linked revival of the stalled $6 billion programme with increase in electricity prices and additional revenue measures – the two conditions that Pakistan had not fulfilled in January this year, which derailed the programme.
The technical teams of the IMF and Pakistan on Thursday held discussions over the steps that Pakistan will have to take for restoring the programme, sources in the Ministry of Finance and Ministry of Energy told The Express Tribune. The discussions were held through a video link, and led by Ernest Rigo, IMF’s Washington-based Mission Chief to Pakistan.
It was more of an issue of increasing the power tariffs than the additional tax measures, said another source in the Federal Board of Revenue (FBR). The IMF team asked Pakistani authorities to increase the electricity prices on account of quarterly adjustments and annual price adjustments, said the sources.
The Economic Coordination Committee (ECC) of the cabinet on September 30 had approved to increase the electricity prices by up to 17% on account of quarterly tariff adjustments for November-June period. But the federal cabinet on October 6 did not approve it, according to a federal cabinet minister.
The ECC last month had approved to increase the per unit power tariff by minimum 32 paisa (2%) for up to 200 units monthly consumers and maximum Rs2.63 per unit (17.2%) for commercial and industrial consumers.
The cumulative quarterly and annual tariff increase is in the range of over Rs3 per unit, said the sources. But the net increase may be lower due to maturity of Rs2.89 per unit quarterly tariffs of the previous years, said the sources. In case of annual tariff increase, the prices could increase Rs1.20 per unit.
The prevailing political conditions are one of the hindrances in approving the new electricity prices. The Pakistan Democratic Movement (PDM) – an alliance of 11 opposition parties, has announced country wide rallies to change the two-year old government of Prime Minister Imran Khan.
The IMF was of the view that the federal cabinet should approve the quarterly tariff adjustments along with increase in prices on account of annual tariff increase, the sources said.
In January this year, the IMF had placed the conditions of increasing electricity tariffs and bringing nearly Rs200 billion worth of mini-budget for taking Pakistan’s case to its board for approval of the third loan tranche of $450 million and second review of the economy for October-December 2019 period.
At that time, the Ministry of Finance was in favour of taking both measures but Prime Minister Imran refused to increase tariffs and taxes. This led to derailment of the programme and the IMF cancelled a board meeting scheduled to approve the third tranche.
The Express Tribune and the Express News, through its programme The Review, had disclosed that the IMF would not approve the tranche, although the government had then claimed that the programme was on track.
The circular debt has shot over Rs2.3 trillion, which is double the amount left behind by the PML-N government over two years ago. The IMF’s recipe is to increase the prices to control debt build up but it has so far proven counterproductive.
Prime Minister Imran had vowed to bring down the electricity prices as a result of renegotiating terms of deals with the independent power producers. But these understandings have not yet been converted into legally binding arrangements.
The sources said that the second major outstanding issue, albeit less severe than power tariffs, was what will be the gap between the annual tax collection target of Rs4.963 trillion and the actual collection by the FBR. There was consensus between Pakistani and IMF authorities that the Rs4.963 trillion target was not achievable.
The sources said that the annual collection without measures could be in the range of Rs4.650 trillion. They said that the government may have to take around Rs90 billion additional measures, even after downward adjusting the target.
They said that Pakistani authorities told the IMF that the situation on increasing taxes would be clear by October 31. The FBR also wanted to take a gradual approach over withdrawal of concessionary Statutory Regulatory Order (SRO).
In the past one week, the FBR has withdrawn two SROs related to taxing the used cars by the car dealers and imports of machinery. A 17% GST will now have to be paid on purchase of a used car from a dealer.
“The FBR is pleased to rescind its notification NO SRO 947 of September 5, 2008, according to a new notification,” according to another notification that the FBR issued on Thursday.
Due to withdrawal of the SRO 947, the industrial importers will have to pay minimum 1% advance income tax on import of the machinery.
Under the rescinded SRO, the federal government, a provincial government; a local government; a foreign company and its associations whose majority share capital is held by a foreign government; a person who imports plant, machinery for setting up an industry and companies importing high speed diesel oil, light diesel oil, high octane blending component or kerosene oil, crude oil were exempted from payment of advance income tax at import stage.
Now, as per the new SRO, exemption from income tax collection at import stage will not be available to every company. This exemption is now restricted to those companies whose income is exempted from the tax, that too subject to exemption certificate from the FBR.
Previously exemption under the rescinded SRO 947 was available to exempt entities, entities falling under the Final Tax Regime as well as to taxpayers having brought forward losses in addition to various other classes of taxpayers, however, benefit of SRO 715 has not been available to taxpayers other than exempt entities or those subject to 100% tax credit, according to the sources.