Cabinet approves power tariff hike, ends subsidies ahead of virtual IMF talks
- Pakistan-IMF to start virtual talks today.
- Staff-level agreement with IMF expected this week.
- Islamabad facing difficulties in securing external finances.
ISLAMABAD: The federal cabinet on Sunday approved a plan to increase the power tariff and end subsidies ahead of virtual talks with the International Monetary Fund (IMF) starting today on the Memorandum of Economic and Financial Policies (MEFP).
The cabinet also okayed a revised circular debt management plan through circulation in this regard, The News reported Monday.
A team of the Washington-based lender concluded policy-level talks last week but the two sides could not strike a deal due to differences over fiscal measures that needed to be taken before the staff-level agreement.
According to the plan okayed by the cabinet yesterday, to be presented to the IMF, the government will jack up power prices by Rs7.91 per unit in four quarterly adjustments — February-March 2023, March-May 2023, June-August and September-November.
Under the plan, the government will charge Rs3.21 per unit from now onwards, Rs0.69 from March-May and increase it again by Rs1.64 per unit from June onwards to August of 2023. From September-November, the government will hike the power tariff by Rs1.98 per unit.
The consumer base tariff will be increased from Rs15.28 per unit in June 2022 to Rs23.39 per unit till June 2023.
The government also approved to end electricity subsidy of Rs65 billion given to exporters, with effect from March 2023.
The government will be able to get Rs51 billion from the withdrawal of subsidy on electricity for exporters while Rs14 billion will be collected by ending the subsidy on electricity under the Kissan Package from March 2023. For the export sector, the Rs12.13 per unit subsidy on electricity will be taken back.
About Rs250 billion will also be recovered from electricity consumers by June 2023. Under the plan, a surcharge of Rs3.39 per unit will be levied, sources said, according to the publication.
Rs73 billion will be obtained from the increase in quarterly adjustments till June. In the quarterly adjustment, electricity will become more expensive by up to Rs4.46 this month, the sources said.
Meanwhile, the IMF has shared its menu on the table with the Pakistani authorities but gaps still exist in finalising the exact taxation measures, increase in base tariff for electricity and securing confirmation on gross external financing.
The menu, suggested in the MEFP, has remained under discussion in the last two days among the policymakers in Islamabad.
The Pakistani side will talk to the IMF side through a virtual meeting today to finalise specific taxation measures, resolving the lingering controversy over power base tariff and incorporating gross external financing requirements and Net International Reserves (NIR) target for the end of June 2023.
It is not yet known how much time both sides will take to resolve these lingering issues.
“The IMF shared its menu and virtual discussions will kick-start Monday evening to finalise details on relevant important fronts. Once all gaps are filled, then the staff level agreement will be struck,” top official sources confirmed while talking to The News on Sunday.
Now everything is on the menu table and open to discussion for finalising measures. The question here is what the authorities had done in the last 10 days of talks with the IMF review mission when it stayed here. It seems nothing could be concluded.
Flood levy was a priority of the government but the IMF was opposing all those measures which were on-off. The IMF insists upon “permanent revenue measures”, including the raising of GST from 17 to 18%, slapping GST on POL products, and jacking up petroleum levy on energy.
Tax Laws Amendment Ordinance 2023 is expected to be promulgated within this week probably from February 15, in order to fetch an additional tax of Rs170 billion in the remaining four and a half months period of the current fiscal year.
The increase in 1% GST rate from 17 to 18% will fetch Rs60 to Rs65 billion, raising withholding tax on banking transactions to Rs45 billion, hiking Federal Excise Duty (FED) on sugary drinks (it’s still under consideration), hiking FED on locally manufactured and imported vehicles and increasing FED on cigarettes, etc.
Some proposals triggered a heated debate between the two sides. At one stage, a special assistant to the prime minister had to play a role to pacify the sentimental environment, as one participant from the Pakistani side argued before the IMF mission last week that why the Fund mission was asking for all kinds of regressive taxations measures amid rising inflationary pressures.
In the power sector, the IMF wants a hike in the base tariff, as the government approved a revised CDMP for bringing down the baseline scenario to reduce the piling up of debt.
The revised CDMP did not mention anything on increase in base tariff, as the Pakistani authorities argued that they had done it last August 2022.
However, the IMF does not agree to it and asks for an increase in base tariff by Rs4.06 per unit. On gross external financing and the NIR target, a senior official of the State Bank of Pakistan told The News that the NIR target for the end of June 2023 was yet to be agreed upon with the IMF.
Meanwhile, official sources told the newspaper that the most complex issue being confronted by the economic managers was ensuring to secure external financing needs so that the foreign exchange reserves should be built up from their existing level of $2.9 billion by June 30, 2023.
During the last IMF review done in August/September 2022, the foreign exchange reserves held by the SBP were fixed at $16.2 billion for the end of June 2023.
However, it seemed impossible to jack it up to such a level. This is the most sticking point, as Pakistan is anxiously waiting for the pledges to be materialised by the Kingdom of Saudi Arabia, the UAE, Qatar, and China.
These countries say they will support Pakistan if Islamabad is under the IMF programme while the Fund says that it will only enter into a program once these countries assure assistance to Pakistan.
It is not known how this issue will be resolved in the coming few days and weeks.
Gold rate declines for second consecutive day
- Rate of gold reaches Rs232,800 per tola.
- International rate up by $11 per ounce.
- The silver price remains unchanged.
Despite an increase in the international rate, gold’s value declined in Pakistan for the second consecutive day Tuesday.
Data provided by the All Pakistan Sarafa Gems and Jewellers Association (APSGJA) showed the price of gold (24 carats) decreased by Rs1,700 per tola and Rs1,458 per 10 grams to reach Rs232,800 and Rs199,588, respectively.
The gold rate cumulatively lost Rs1,100 per tola last week, and a further Rs1,700 on the opening day this week.
Meanwhile, the international price went up $11 to settle at $1,956 per ounce.
The safe-haven bullion’s value has remained volatile in the international market recently. However, it bounced back from its lowest level in over two months Tuesday after the US dollar’s value declined from a high and investors remained anxious about negotiations on the US debt ceiling.
If the debt ceiling — which is currently capped at $31.4 trillion — is not raised in the next few days, it would trigger the first-ever US default.
Investors also remained wary about a possible hike in the interest rate, which would negatively affect gold’s value.
Meanwhile, the gold rate has been volatile in Pakistan recently amid continued political and economic uncertainty, high inflation, and currency depreciation. People prefer to buy the yellow metal in such times as a safe investment and a hedge.
The rupee gained Re0.07 or 0.02% against the US dollar in the interbank market Tuesday, closing at Rs285.35, according to State Bank of Pakistan data.
Data shared by the jeweller’s body showed that the rate of silver remained unchanged at Rs2,850 per tola and Rs2,443.41 per 20 grams, respectively.
France launching electric car battery factory to dent Chinese dominance
Under a plan of reindustrialisation by President Emmanuel Macron, France is to inaugurate a factory for manufacturing batteries for electric cars Tuesday in Billy-Berclau — the first of its kind — challenging the Chinese dominance in the industry, according to an AFP report.
Battery industry buildup is a component of the plan by Macron with a clutch of factories set to emerge in the north of the country over the next three years.
The “gigafactory” is owned by Automotive Cells Company, a partnership between French energy giant TotalEnergies, Germany’s Mercedes-Benz and US-European automaker Stellantis, which produces a range of brands including Peugeot, Fiat and Chrysler.
The inauguration will be attended by French Economy Minister Bruno Le Maire and the country’s energy transition and industry ministers along with German and Italian officials.
The heads of Mercedes, Stellantis and TotalEnergies will also be at the event.
The factory is as large as football pitches in which production will commence this summer.
Elected officials and business leaders intend to turn the Hauts-de-France region into “Battery Valley” — the electric car industry’s answer to Silicon Valley.
AESC-Envision — a Sino-Japanese group — is building a plant near the city of Douai which will supply French automaker Renault from early 2025.
French startup Verkor is scheduled to begin production at a facility in Dunkirk from mid-2025 while Taiwan’s ProLogium has also chosen the coastal city for its first European factory, with output to start in 2026.
Competition between US and China
As European Union (EU) has marked a deadline of 2035 to phase out fossil fuel-run cars, the countries are racing to step up the production of batteries and electric vehicles to meet the target of electric vehicles within the deadline.
In recent years, around 50 battery factory projects have been announced in the EU and the French government has set a target of producing two million electric vehicles per year by 2030, as per the economy ministry.
The ministry said that “the ACC plant will supply 500,000 vehicles per year by then.”
China is the world leader in electric car battery production and also dominates the production of the raw materials needed to make them.
Europe also faces stiff competition from the United States, which is heavily subsidising the sector through the Inflation Reduction Act, which includes $370 billion in clean energy incentives.
Govt mulls slashing duty on mobile phones in budget
ISLAMABAD: The Federal Board of Revenue (FBR) is mulling options to reduce the duty on mobile phones in the federal budget for the fiscal year 2023-24 — which is expected to be unveiled on June 9 — keeping in view the suggestions of Pakistan Mobile Phone Traders, The News reported Monday.
Previously, the government was obliged to raise the duty on mobile phones by 100% to 150%, and resultantly, only Rs5 billion to Rs10 billion were being deposited in the national exchequer instead of Rs85 billion.
The number of mobile phone users in Pakistan has exceeded 186.9 million.
In order to cope with the financial crisis of the current financial year, in the new budget, a proposal for a conspicuous reduction in the rates of duties on cellular phones is under consideration, which is about 100% to 150% at present on small and big mobile phones.
The mobile industry is on the brink of collapse due to an increase in taxes. It not only affected traders but also made the life of millions of people difficult to earn a livelihood.
It has been learnt that a delegation of the Mobile Phones Traders Association has given recommendations to Finance Minister Ishaq Dar and other senior officials.
The delegation ensured that efforts would be made to include the recommendations in the budget. These proposals and recommendations are being reviewed to make them a part of the new budget.
It has been learnt that a 75% duty was imposed on cellular phones in Pakistan as compared to other countries of the region like Singapore, Bangladesh and Turkey where it is not at that level. That is the reason people are using smartphones without paying duties in connivance with FBR.
The additional 100% to 150% duty on cell phones has made it out of reach of the poor, labourers, daily wagers, students, professionals, the lawyer community, and civil society.
All Pakistan Mobile Phones Traders Association General Secretary Munir Beg Mirza said that due to the ban on the import of used mobile phones, smuggling has increased to give favour to a few companies.
Also, people are using smartphones illegally without paying heavy taxes to enjoy all functions of smartphones, which is inflicting a loss on the national kitty.
He said that not only every consumer would pay tax but also the government would get Rs100 billion instead of Rs5 billion on phones if an appropriate duty was imposed in the new financial year.
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