The International Monetary Fund (IMF) has decided to reject Pakistan’s plan to levy a one percent water storage tax on all taxable goods to raise revenue for mega dam projects across the country. According to reports, the international creditor has proposed that Pakistan raise funds for the development of dams by increasing the already high general sales tax (GST) rate, which currently sits at 18 percent.

 

As per reports, the federal government intended to impose a water storage tax to fund the development of Mohmand, Diamer-Bhasha and potentially Chenab Dam. However, this reportedly caused the IMF to highlight fiscal, legal and governance concerns.

 

Moreover, details from reports suggest that the fund was not in favour of “handing revenue control” to the Water and Power Development Authority (WAPDA). Instead, the IMF suggested that the government could either prioritise these development initiatives by funnelling funds from the Rs1 trillion allocated for development projects to the construction of dams or by increasing the GST.

 

It merits a mention that reallocating funds from the Public Sector Development Programme’s (PSDP) Rs1 trillion budget to fund dam projects could result in the neglect of a number of projects. Data from reports indicates that the revised cost for the Diamer-Bhasha dam alone could cost a staggering Rs1.1 trillion, a figure 10 percent larger than the entire PSDP budget.

 

This revised figure sits much higher than earlier estimates pegged the cost of the dam to be, sitting at just Rs479 billion. Moreover, with only Rs25 billion allocated to the dam, reports reveal that authorities are short of a whopping Rs365 billion on the original estimate. 

 

Similarly, the government needs Rs173 billion to cover the cost of the Mohmand dam, with Islamabad’s financial outlay for the project sitting at just Rs35.7 billion. Constructing the Chenab dam could cost the government another Rs220 billion.

 

Put together, these three development projects alone require a whopping Rs1.35 trillion in additional funding. However, reports suggest that the government may attempt to raise these funds without a hike in GST.

 

This could be possible if Islamabad amends the Gas Infrastructure Development Cess (GIDC) Act to funnel unspent funds from collections into dam projects. While the construction of the dam could help safeguard Pakistan from water-related natural disasters and assist the agricultural sector, it could serve to exacerbate the surplus power issue.