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Monday June 24, 2024

IMF told about likely solar policy changes

However, whole taxation cannot be allowed to end on electricity bills

By Khalid Mustafa
May 22, 2024
A man with a solar panel. — Reuters/File
A man with a solar panel. — Reuters/File

ISLAMABAD: The Power Division’s officials Tuesday told visiting IMF mission electric power consumers pay Rs800 billion to government per annum through taxation on electricity bills causing Rs8 per unit hike in the bills. They communicated to the Fund if the said taxation is eroded tariff would climb down by Rs8 per unit. In addition, power consumers also pay electricity duty, PTV fee and surcharges in their bills.

However, whole taxation cannot be allowed to end on electricity bills. It should be sliced down by Rs100-200 billion per annum, as it would help give relief to consumers by Rs1-2 per unit. The tax authorities should increase tax net at the maximum by roping in retailers, real estate and agriculture sectors.

The 17pc General Sales Tax (GST) cannot be eroded by the FBR, and this only contributes Rs600 billion in government revenue from electricity bills. Other taxes of Rs100-200 billion can be eliminated from electricity bills.

The top management of Power Division has also sensitised Prime Minister Shehbaz Sharif about massive taxation on electric power consumers and its impact on tariff.

“Right now country’s power sector is no longer sustainable, reliable and affordable, and we have to think over every option to make sure electricity at affordable”, official sources told The News.

A power consumer pays Electricity Duty (ED), a provincial duty, levied to all consumers ranging from 1.0pc to 1.5pc of Variable Charges. He also pays 17pc of electricity bill as GST imposed on all consumers under Sales Tax Act 1990. Domestic consumers pay Rs35, while commercial consumers pay Rs60 as PTV licence fee in their electricity bills.

The consumer pays financing cost surcharge of Rs0.43 per kWh. It applies to all consumer categories except lifeline domestic consumers. Extra Tax is being charged to industrial and commercial consumers (not registered in active tax payer list of FBR) at 5pc to 17pc on different bill amount slabs.

Further Tax is being charged at the rate of 3pc to all consumers—having no Sales Tax Return Number (STRN) except domestic, agriculture, bulk consumers and street light connections. Commercial consumers also face a 5pc Sales Tax on bills up to Rs20,000 and 7.5pc tax on bills exceeding Rs20,000.

Income Tax is also being charged at varying rates depending on the applicable tariff and the electricity bill amount. However, the authorities are working on restructuring with focus on ensuring maximum efficiencies. They will also reduce tariff through efficiency gains. The power plants based on imported coal would be converted to local coal of Thar.

IMF has also been told almost 1938 MW of electricity has been added in the system through roof-top solar system under net metering mode. Because of this revenue loss of Rs100 billion in the system has been shifted to consumers by passing hike of tariff of Rs1.90 per unit on those who have not installed solar system on their roofs.

The Fund is briefed some changes are being introduced in the policy about solar panels being installed by the masses.

The government would introduce gross metering instead of net metering system. Tariff would be reduced to Rs7.5 to 11 per unit instead of Rs21. They will be provided electricity from national grid at Rs60 per unit during night or peak hours.

The IMF has been sensitised country’s national grid is currently providing service to rooftop solar consumers against the cost of storing electricity through batteries with huge impact to the system. If the consumer has roof solar system detached from the national grid, he would have to install huge batteries to store solar energy for consumption during night time. Per unit cost he would brave will stand at 20 cents or Rs60.

Under the new policy, buy back tariff from solar consumers would be brought down to Rs7.5-11 per unit keeping in view massive decline in solar panels prices. Electricity would be provided to them from national grid at Rs60 per unit during night time or peak hours.

Under the gross metering system, a consumer is compensated at a fixed feed-in-tariff for total units of solar energy generated and exported to the grid (as measured by a unidirectional gross meter). One must pay retail supply tariff to the power distribution company for power consumed from the grid.

Total solar generation is measured by bi-directional meter, while total power import by unidirectional meter.