Islamabad:
Pakistan has sought the International Monetary Fund’s (IMF) permission to introduce a special 1% tax on each taxable product produced in the country, except for electrical energy and medicine, to finance two mega -water storage dams as a solution to handle Indian water aggression.
The decision to impose a new cess has been made after the majority of provincial governments showed reluctance to finance the early end of the Diamer-Bhasha dam and the Mohmand dam, according to the sources of the Ministry of Water Resource and the Ministry of Finance.
However, the government also met resistance from the IMF, which has called on the federal government to try to find a space within the approved RS1 trillion federal public sector development program revealed the sources.
The Diamer-Bhasha Dam to a value of the RS480 billion and the Mohmand dam -80s-uprightly estimated to cost RS310 billion goods approved in 2018, but a minimum of RS540 billion was still needed for their completion.
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.
The sources said that Pakistan, as an alternative strategy, has decided to quickly track the construction of the two dams. However, due to its political priorities and urgent demands from the coalition partners, the government has reduced the development budget for the water sector by 28% to RS133 billion for the next financial year. Now it will offset this by introducing a new tax.
The sources said the government has decided to charge a 1% cessation on the gross value of all local taxable supplies to obtain the extra funds subject to the approval of the IMF and of Parliament. They said that all the goods produced in Pakistan and exposed to SKAT are proposed to be charged to a new cessation of 1%.
The goods currently exempt from the turnover tax according to the sixth schedule or charged at a zero rate according to the fifth form of VAT court would be immune to cess. Also, the electrical energy products and pharmaceutical products are proposed to be exempt from the new cess.
Cess is different from a normal tax and it can only be charged for a specific purpose, such as gas infrastructure development CESS (GIDC), which had been introduced to finance Iran-Pakistan gas pipeline. Effectively, any item produced in Pakistan and consumed by all households would be subject to 1% new special tax, the sources said.
Ministry of Finance spokesman Qumar Abbasi and Secretary Water Resources Ministry Syed Ali Murtaza did not respond to the request for comments. They have been asked to confirm the development and also the IMF’s position.
An official in the Ministry of Senior Financing said the proposal was considered, but the discussions with the IMF were still underway. He said Cess would not be imposed through the Finance Act 2025, and instead a new separate bill will be introduced in parliament, subject to the IMF approval.
In the event of GIDC, the Supreme Court has decided that Cess can only be charged for a specific purpose and this requires separate legislation. This binds the government’s hands from introducing cessation through the Finance Act, which is currently being discussed in parliament.
The GIDC case is also an example of how the government doesn’t care. The companies in textile and fertilizers have not yet deposited over RS400 billion in the kitten despite having collected them from consumers. The Ministry of Finance and Petroleum is unable to create an effective strategy.
One of the options is that instead of charging a new 1% cessation, the government should change the GIDC law and divert the already raised money to build dams.
On the intervention of Petroleum Minister Ali Pervaiz, the government has again constituted a committee under Presidency of Finance Minister Muhammad Aurangzeb to recover Gidc. But also this selection is moving at a snail pace.
The sources said the IMF’s view was that the government should finance the dam projects from PSDP instead of imposing more burden on the people.
However, 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 complete the work of the Diamer-Bhasha dam at the current pace of the budget allocation.
PSDP is already overlooked and there is no room to finance these projects in addition to the awards made in the new budget, said Ahsan Iqbal, the federal minister of planning and development. He said that out of RS1 Billion awards effectively, RS640 billion was available for financing PSDP.
Iqbal said the remaining RS360 billion had been awarded to the costs of N-25 Karachi-Quetta Road, provincial schemes and special areas’ allocations.
The sources said that Prime Minister Shehbaz Sharif, after the National Economic Council (NEC) meeting earlier this month, also had chairman of a special meeting with the provinces to convince them to finance these two dams to deal with Indian aggression.
In a follow-up meeting with Deputy Prime Minister Ishaq Dar, the provinces, except Khyber-Pakhtunkhwa, showed a reluctance to finance federal projects, the sources said.
The cost of the Diamer-Bhasha Dam had been estimated at the RS480 billion seven years ago, and it still needs RS365 billion more to complete the work at a price that is likely to rise further. For the next financial year, only RS25 billion is allocated to the project, which is even less than this 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 in the new financial year.
Earlier this week, Ahsan Iqbal said the government has put forward the implementation of both projects by two years and these dams will be completed by 2030. He said Pakistan has 7 million hectares large feet with additional water storage capacity.
Pakistan’s two reservoirs Tarbela and Mangla Dams face storage -related problems due to sedimentation and other technical problems.
The Sindh government has provided a deficit budget for the next financial year and also showed zero balances for the outgoing financial year. This has surprised many as the provincial government had a cash profit of RS395 billion until March this year, according to the Ministry of Finance’s overview of fiscal operations.
For the next financial year, Sindh has shown an RS38.5 billion deficit budget that defeats the IMF’s core goal of getting RS1.4 trillion cash surplus from all four provinces.
