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Pakistan government approves new tax on electricity to meet IMF conditions

Pakistan is moving swiftly to pacify the IMF with the approval of a new tax on electricity users, including farmers, to raise an additional Rs 170 billion in revenue to meet the conditions of the global lender, according to a statement.

The IMF delegation held 10-day marathon talks with Pakistan officials to release the next tranche of $1.1 billion out of an already agreed loan but left on Thursday for Washington without signing a staff-level agreement.

Finance Minister Ishaq Dar, who had led the Pakistan side in talks, told the media on Friday that prior actions were needed as the two sides would resume the talks in virtual mode from Monday.

Hours later, the Minister chaired the meeting of the Economic Coordination Committee of the cabinet which approved the imposition of a special financing surcharge of Rs. 3.39 per unit in average power tariff in addition to quarterly tariff adjustments of up to Rs. 3.21 per unit for one year and recovery of pending fuel cost adjustments of up to Rs 4 per unit for about three months.

The ECC also approved the discontinuation of power tariff subsidies to zero-rated industries as well as the Kissan package with effect from March 1 to fulfil other prior action conditions by the IMF.

The meeting approved an overarching Revised Circular Debt (power sector debt) Reduction Plan worth Rs 952 billion for the current fiscal year that would also involve an additional budget subsidy of about Rs 335 billion to meet another condition, the Ministry of Finance said in a statement on Saturday.

While approving these measures that would further burden the masses with costly electricity and other household items, the ECC approved a technical supplementary grant of Rs 450 million in favour of the Ministry of Defence, showing that the country would continue to spend on defence even when the economy was in dire straits.

Among other measures, the country also agreed to raise 1% the General Sales Tax (GST) rate, in just four months, from the current 17%.