Hike in energy tariffs, more taxes: Shehbaz ready to meet IMF demands?

After months of showing hesitance, Prime Minister Shehbaz Sharif on Wednesday reportedly agreed to enforce hard decisions to break the stalemate with the International Monetary Fund (IMF), which include increasing the gas and electricity tariffs and unveiling a mini-budget for imposing more taxation measures to fetch Rs150 billion to Rs200 billion.

Media reports quoting sources say, the prime minister chaired an online meeting in which important decisions were taken. However, the consultations are expected to continue Thursday (today).

When asked about the possible hike in electricity and gas prices, State Minister for Petroleum Mussadik Malik did not reply.

However, the sources said gas tariff was expected to increase from Rs650 per MMBTU to Rs1,100 per MMBTU on average.

Both distribution companies – SNGPL and SSGCL – have a circular debt of Rs1,640 billion and the government plans to recover Rs800 to Rs850 billion through the move, as the IMF is pressing hard to deal with the circular debt issue.

In the power sector, the government is considering raising the electricity tariff from Rs4.50 per unit in the first phase and Rs3 per unit in the second phase within the ongoing fiscal year.

The government’s envisaged FBR tax collection target was Rs7,470 billion, however, FBR fell short by Rs225 billion until December. The collection in line with the IMF’s target was missed out by a margin of Rs82 billion for the end of December 2022.

An internal assessment shows that the tax collection machinery will be facing a shortfall of Rs170 billion for the ongoing fiscal year – hence an amount of Rs7,300 billion against the initially envisaged target of Rs7,470 billion.

To fulfil the shortfall by the FBR, the government will have to take extra measures that could fetch Rs300-400 annually. Imposing additional taxes and rate hikes would be an excruciating process, which the government would undergo through a possible presidential ordinance.

In this connection, the government plans to slap a 1 to 3% flood levy on imports to fetch Rs100 billion along with a 60 percent to 70 percent windfall tax on commercial banks’ alleged earnings through manipulation of the exchange rate. The banks estimated earned around Rs100 billion in extraordinary profits in the first nine months of the calendar year 2022.

An increase in the Federal Excise Duty (FED) on sugary beverages, and cigarettes and slapping GST on POL products is also on cards. However, in the recent past, Finance Minister Ishaq Dar sternly opposed slapping 17 percent GST on POL products, arguing that it would be highly inflationary.

It is yet to be seen how the government will respond to the IMF’s demand to allow the depreciation of the rupee against the US dollar. Dar is not going let the depreciation of the exchange rate free fall but he will have to generate dollar inflows to improve the dollar liquidity crunch in weeks and months ahead.

LEAVE A REPLY

Please enter your comment!
Please enter your name here