PM’s Rs200b industrial package in limbo

Islamabad:

The International Monetary Fund (IMF) has not only opposed Prime Minister Shehbaz Sharif’s Rs 200 billion package aimed at reducing power tariffs for industrial consumers by Rs 10.69 per unit, but also disapproved the proposal to impose wealth tax on all types of assets. including bank balances.

The sources said that instead of reducing the tax burden of certain sectors, the government proposed to levy 0.1% wealth tax on all assets including bank balances and shares and 0.5% wealth tax on assets declared in the returns property from taxpayers. However, the IMF has opposed imposing a wealth tax on cash stashed in bank accounts, they added.

The sources said that after excluding depositors’ bank balances, the revenue impact of remaining assets is not very high, therefore, the government may not introduce the wealth tax on Friday.

The government does not want to tax pesticides, fertilizers and former Federally Administered Tribal Areas and should give the alternatives to the global lender instead of the sectors.

Similarly, the IMF has once again sought more clarification on the prime minister’s decision to reduce the electricity rate for industries by Rs 10.69 per unit under the Rs 200 billion aid package, the sources said.

The global lender has seen the package as an attempt to give hidden subsidies to industries on the one hand and put an extra burden on household consumers on the other to finance the package, according to government sources.

The IMF’s permanent representative, Esther Pereth, did not respond to a question about whether the government took the IMF into account before announcing the package.

The government has allocated Rs 120 billion in the budget to fund the package in the next financial year and plans to recover the remaining amount from residential, commercial and industrial consumers through fixed electricity charges.

The Power Department also did not respond to a request for comment.

Over the weekend, the government shared more data with the IMF to explain its case in hopes of winning approval for the industrial package.

It is the second time that the IMF has opposed the reduction of electricity prices for industries. Earlier in February this year, the head of the IMF’s mission in Pakistan, Nathan Porter, had said that the proposed tariff reduction plan for industry did not address the underlying problems, namely the cyclical neutrality of the tariff rationalization plan’s debt. she was doubtful.

It seems that neither the IMF nor industrialists are happy about the package. Industrialists say it would put a heavy financial burden on large industries that have heavy electricity loads and are now vulnerable.

Industrialists started throwing hue and cry against the government’s decision to impose fixed electricity surcharges on industries which they said would wipe out their business due to the steep rise in electricity costs.

Industrialists are of the view that the cost of fixed charges was even higher than the Rs 10.69 per unit cut in their bills, which has also once again been laid at the door of the IMF.

They said the fixed charges of Rs 2,000 per kW per month would translate to nearly Rs 9 per unit on a variable unit consumption basis for the industry operating at 50% capacity. Earlier fixed charges for industries ranged from Rs 460 to Rs 500 per kW per month.

Now, industrial consumers will face increased fixed charges, with those using up to 25 kW paying Rs 1000, B2 category (consumers up to 500 kW) paying Rs 2000 per kw and B3 and B4 category consumers of 5000 kW and above to also pay Rs.2000.

They said that because of the weak economic conditions, factories were not operating at even half their capacity. As a result, factories may not be able to use even half of their permitted load, forcing them to pay fixed charges equal to half their load capacity.

The government reduced prices by ending the cross-subsidy these industries provided to finance low-end household consumers. The industrial consumer paid Rs 8.61 per unit subsidy and the domestic consumer using more than 400 units paid Rs 5.88 per unit to subsidize the low end domestic consumers.

In February this year, the head of mission had said that the plan to cut tariffs “will put a significant burden on vulnerable households”.

However, the National Electricity Regulatory Authority (NEPRA) has introduced fixed monthly charges for residential, commercial and industrial consumers. Domestic consumers will now face fixed charges ranging from Rs 200 to Rs 1000 per month depending on their monthly consumption.

Commercial consumers will see a significant increase in their fixed charges, with a 300% increase for those using less than 5kW and a 355% increase for those using 5kW or more.

The IMF has also hardened its stance to make natural gas unviable for domestic industrial power plants and has sought to raise prices significantly. The global lender wants full cost recovery of imported LNG by raising current prices to Rs 3600 per mmbtu. The other option for the government is to cut gas supplies, which the government has refused.