Islamabad:
The International Monetary Fund has rejected Pakistan’s proposal to introduce 1% water storage stop for goods to build megadams and instead suggested to increase the 18% standard VAT for financing any enlarged size of the federal development program.
The development came in the midst of an expected revision of the cost of the Diamer-Basha Dam and needs the funds to build a new Chenab dam over the Chenab River, which at least requires additional RS800 billion, according to the government sources.
Official sources said the global lender did not approve the proposal to introduce water storage stops that the government wanted to introduce to any taxable product produced in the country except electrical energy and medicine. Cess has been suggested to finance two mega -water storage dams and build a new one as a solution to deal with Indian water aggression.
The development is pushing the government in a tight place that was willing to increase the tax burden, but only in a way that would ensure that 100% of the collection remains in the federal kitty instead of being shared with provinces.
In case of cess, the government will have the full right of collection, while VAT would become part of the federal divisible pool.
The government had sought the IMF’s permission to introduce the new tax after the majority of provincial governments showed reluctance to finance the early end of the Diamer-Bhasha dam and the Mohmand dam. The government had suggested that the provinces choose half of RS716 billion costs of Benazir -Income Support Program and RS358 billion fiscal space will be used to build dams at a faster pace to handle Indian aggression. The provinces refused.
The spokesman for the Ministry of Finance’s Qumar Abbasi did not comment on the development.
The sources said the IMF has many objections to the proposal for water storage, including the legal and government challenges. They added that the fund was of the opinion that any special tax reduces the flexibility of the budget and VAT can provide such flexibility.
Furthermore, the IMF was not comfortable with the idea of giving control of the new cess to the Water and Power Development Authority (WAPDA), they added.
The IMF had previously asked the government to finance these dams from RS1 Trillion Worth Public Sector Development Program (PSDP). But the government was not inclined to get more money from PSDP, which this year focused more on the needs of the coalition partners than having mega strategic projects as national priority.
The sources said the IMF informed Pakistan that if it wanted to get more money for development costs, it may consider increasing revenue tax.
The standard turnover tax is 18%, while the government also charges 3% extra VAT frequency if a good is sold to an unregistered person.
The government’s previous decision to increase the petroleum tax rate to give Elsubsidie and finance a path in Balochistan has led to an abnormal increase in prices of diesel and gasoline since July 1.
The landed costs for diesel are RS177.89 per year. Liters and gasoline RS168.73 per Liter, excluding all types of margins, rupee depreciation and taxes. However, after adding these additional costs, the high -speed diesel price is set to RS284.35 and gasoline for RS272.15 per year. Liter.
Seven years ago, the government had approved the Diamer-Bhasha Dam for a cost RS479 billion and Mohmand for RS310 billion. The sources said the revised estimates suggest that the diameer Basha damping costs can skyrocket to over RS1.1 trillion, an addition of about RS620 billion. The exact costs are determined when the Ministry of Planning receives the revised documents.
Even against the original costs of RS479 billion, the government needed RS365 billion more to finish the work. For this financial year, only RS25 billion is awarded to Diamer Basha dam, which is even less than the last financial year.
Likewise, the Mohmand Dam was approved at a price of RS310 billion seven years ago, and it still requires a minimum of RS173 billion more at the old price. Only RS35.7 billion is awarded for the new financial year.
Likewise, the government plans to build a dam on the Chenab River with a cost of approx. RS220 billion. This requires additional RS800 billion for Chenab dam and diamer-Basha dam. After adding the remaining financing requirements, the government needs a total RS1.35 trillion for only these three dams.
India has threatened to reduce the water supply after it had Indus Water’s Treaty (IWT) in violation of the treaty provisions and in the violation of international law. Islamabad has clearly told India that any such action would be considered an act of war.
For this financial year, the government has reduced the development budget for the water sector by 28% to RS133 billion. Now it will offset this by introducing a new tax.
One of the options is that instead of charging a new 1% top or increased GST rate, the government should change the GIDC law and divert the already collected a lot over RS400 billion money to build dams.
The Ministry of Water Resources has informed the government that it would take 15 years to end the Mohmand dam and over 20 years to end the work on the Diamer-Bhasha dam at the current pace of the budget distribution.
Ahsan Iqbal, the Federal Minister of Planning and Development has already excluded further space in PSDP to finance the large projects.
The government has held meetings this week in the Ministry of Planning and the Prime Minister’s office to end a strategy for financing other projects that can be completed and to be inaugurated by Prime Minister Shehbaz Sharif this year.
