Business
No relief for electricity consumers: IMF rejects govt’s proposal to cut sales tax
he claim of the government to reduce electricity tariff received a rude shock as the global lender IMF (International Monetary Fund) rejected Islamabad’s proposal to cut sales tax.
The Ministry of Energy had suggested the government a cut in sales tax. And the government sent a request to the IMF which turned it down.
The IMF said that exemption from new taxes cannot be given under its loan programme. It will not be possible to achieve tax collection targets if sales tax is reduced, added the IMF.
It may be noted that a consumer is charged GST twice in electricity bills – once 18 percent tax is levied on the total amount of the bill, while the second time sales tax is levied on fuel cost adjustment.
OTHER LEVIES ON POWER BILLS
The government collects Rs954 billion annually from taxes levied on electricity bills. Of this amount, the federal government receives Rs391 billion, while the provinces get Rs563 billion.
According to a document released by the government in August 2024, a consumer is slapped with income tax, advance tax, additional tax, extra sales tax, retailers’ sales tax, electricity duty, and PTV fee.
The breakdown of the taxes is as follows:
Electricity Duty: It is a provincial levy ranging from 1% to 1.5% of variable charges, applicable to all consumers.
PTV License Fee: An additional charge of Rs35 for domestic consumers and Rs60 for commercial consumers is added to the bills.
Financing Cost Surcharge: Imposed at a rate of Rs0.43 per kWh, affecting all consumer categories except lifeline domestic consumers.
Fuel Price Adjustment (FPA): A variable component reflecting the discrepancy between actual and reference fuel charges.
Extra Tax: Industrial and commercial consumers, not registered in the active taxpayer list of the Federal Board of Revenue (FBR), are subject to a tax rate of 5% to 17%, depending on different bill amount slabs.
Further Tax: This additional tax of 3% is levied on all consumers without a Sales Tax Return Number (STRN), excluding domestic, agricultural, bulk consumers, and street light connections.
Income Tax: Charged at varying rates based on applicable tariffs and the amount of the electricity bill.
Sales Tax: Commercial consumers are taxed at a rate of 5% on bills up to Rs20,000 and 7.5% on bills exceeding Rs20,000.
The dollar steadied against major peers on Thursday, continuing its near paralysis of the past two days before more concrete announcements on tariffs from U.S. President Donald Trump.
A spate of central bank policy decisions are also due over the next week, with the Bank of Japan widely expected to raise interest rates at the end of a two-day meeting on Friday.
Rate decisions from the U.S. Federal Reserve and European Central Bank are scheduled for Wednesday and Thursday of next week, respectively.
The dollar index – which measures the currency versus six top rivals, including the euro and yen – was flat at 108.25, following two days of gains of around 0.1%.
On Monday, it tumbled 1.2%, its steepest one-day slide since November 2023, as Trump’s first day in office brought a barrage of executive orders, but none on tariffs.
So far this week, Trump has mooted levies of around 25% on Canada and Mexico and 10% on China from Feb. 1. He also promised duties on European imports, without giving details.
“President Trump has so far taken a less hostile-than-expected approach to China,” amid overall “softer-than-expected policies and tone on tariffs”, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
At the same time, “we are cautious (that) risk sentiment remains fragile and can quickly turn sour if President Trump strikes a more aggressive tone.”
The Chinese yuan was little changed at 7.2812 per dollar in offshore trading .
Wall Street’s main indexes rose Wednesday, with the S&P 500 hitting an intraday record high thanks to strong Netflix earnings and a rally in tech shares.
Japan’s yen edged up about 0.1% to 156.40 with markets pricing 95% odds of a quarter-point hike on Friday.
The euro was flat at $1.0411. The ECB is widely expected to cut rates by a quarter point next week.
The Canadian dollar held steady at C$1.4386 against the greenback. The Bank of Canada is seen as likely to reduce rates by a quarter point next Wednesday.
The Mexican peso was little changed at 20.47 versus the U.S. currency.
Oil prices dipped in early trade on Thursday, extending losses amid uncertainty over how proposed tariffs by U.S. President Donald Trump on several countries would impact global economic growth and energy demand.
Brent crude futures fell 23 cents, or 0.3%, to $78.79 a barrel at 0135 GMT, while U.S. West Texas Intermediate crude (WTI) eased 18 cents, or 0.2%, to $75.26.
In its previous session, Brent futures settled at $79.00 in a fifth straight day of losses. WTI futures settled at $75.44 in a fourth consecutive day of declines.
Trump has said he would add new tariffs to his sanctions threat against Russia if the country does not make a deal to end its war in Ukraine. He added these could be applied to “other participating countries” as well.
He also vowed to hit the European Union with tariffs, impose 25% tariffs against Canada and Mexico, and said his administration was discussing a 10% punitive duty on China because fentanyl is being sent to the U.S. from there.
Meanwhile, estimates from an extended Reuters poll showed that on average U.S. crude oil stockpiles were expected to have fallen by 1.6 million barrels in the week to Jan. 17.
Gasoline stockpiles were estimated to have risen by 2.3 million barrels last week, and distillate inventories were likely to have gained 300,000 barrels.
The poll was conducted ahead of the American Petroleum Institute industry group’s report and another from the Energy Information Administration at 12:00 p.m. ET (1700 GMT) on Thursday.
European wind shares fell on Tuesday (January 21).
The reports were delayed by a day due to the Martin Luther King Jr. Day federal holiday on Monday.
Pakistan and Saudi Arabia have reaffirmed their commitment to further strengthening the bilateral economic ties for shared prosperity.
The commitment was expressed when Finance Minister Muhammad Aurangzeb met with his Saudi counterpart Mohammad bin Abdullah Al-Jadaan on the sidelines of World Economic Forum Annual Meeting in Davos.
Muhammad Aurangzeb highlighted the key reform measures undertaken by the Government to promote economic stability and sustainable growth.
He briefed him on structural reforms, fiscal discipline and regulatory improvements that have contributed to an improved investment climate in Pakistan.
Earlier, Aurangzeb met Anna Bjerde, Managing Director of Operations at the World Bank.
They discussed cooperation between Pakistan and the World Bank, with a particular focus on Pakistan’s macroeconomic stability.
The finance minister emphasized the government’s strong partnership with the Bank and expressed hope that the World Bank would continue playing a key role in the country’s socio-economic development.
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