In an attempt to provide relief to businesses and consumers from the burden of high electricity bills, Pakistan’s Ministry of Energy submitted a formal request to reduce sales tax on electricity bills to the International Monetary Fund (IMF). The Fund, however, has rejected the request, citing commitments stemming from the current seven-billion-dollar loan program.

 

Austerity measures are proving to be back breaking for certain segments of the population, particularly low income households and small businesses. A Bloomberg report released in 2024 revealed that the electricity bill of some households has exceeded the rent that they have to pay for their house. This phenomenon can be attributed to the 155 percent rise in electricity tariffs over the past three years.

 

Islamabad recently announced a 75 paisa drop in tariffs and wanted to further ease the strain of high electricity bills on businesses and the general public. According to Profit, officials from the ministry of Energy sought the IMF’s approval for a reduction in the sales tax rates which stand at a staggering 18 percent by arguing that this would provide much-needed relief to consumers.

 

The IMF however, wants to set Pakistan on the path of self-sustainability and believes that a reduction in taxes will only serve to derail Pakistan in its journey to meet tax collection targets. Perhaps the IMF is unaware of the ground realities as the despair of facing inflated electricity bills has led many people to commit suicide.

 

According to The Nation, hikes in monthly bills have led to a spike in suicide rates. The extortionately high electricity bills can be attributed to the 18 percent General Sales Tax (GST) being applied twice on electricity bills.

 

The reason behind being taxed twice is that consumers face taxes on both the fuel cost adjustments and then again on the total bill amount. Despite many being pushed into poverty due to the high bills, the IMF has insisted that Islamabad not tinker with the tax rates in order for Pakistan to meet fiscal targets.

 

While consumers feel the full weight of the austerity measures, industrialists grow worried as the federal government is cracking down on Captive Power Plants (CPP) as well. In order to meet another one of IMF’s conditions related to electricity production, distribution and pricing, Islamabad has agreed to raise the levy on gas supplied to CPP’s.

 

It is interesting to note that the industrialists expected to be hurt most by this move will be those from the textile sector which is responsible for bringing in 60 percent of Pakistan’s export revenues. Experts are predicting that the IMF’s measures to shut down captive power plants might reduce the textile sector’s competitiveness, causing harm to businesses and the economy in the long run.