The Pakistani government has failed to convince the International Monetary Fund (IMF) to agree to a sales tax reduction on electricity bills.
According to sources, the IMF rejected a request from Pakistan’s Ministry of Energy, which sought a reduction in sales tax to ease 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 reduction in sales tax rates on electricity bills, Express News reported.
However, the IMF maintained that, under the current lending program, no exemptions or reductions could be granted for new taxes.
IMF officials also clarified that reducing sales tax would hamper Pakistan’s ability to meet its tax collection targets.
Pakistan currently imposes an 18% goods and services tax (GST) on electricity bills twice. The first tax is applied to the total bill amount, while the second is applied to fuel cost adjustments.
Earlier, the federal government made a key decision to meet another important condition set by the IMF, by agreeing to impose a tax on captive power plants before the release of the next tranche of financing.
According to sources, the government has made preparations to implement this tax on captive power plants, which will be implemented gradually to avoid 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 tax will be introduced before the next IMF tranche is disbursed.
