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September 13, 2018

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Power tariff to be hiked

ISLAMABAD: The National Power Regulatory Authority (Nepra) has suggested an increase in power tariff by Rs4 per unit in a summary forwarded to the power division on Wednesday.

However, the final decision pertaining to the increase rests with the Ministry of Water, Power and Energy and a notification will be issued in this regard. The summary also include arrears to be collected from customers amounting to Rs18 billion.

Meanwhile, the Pakistan Tehreek-e-Insaf (PTI) government decided to impose new taxes to the tune of Rs400 billion in the mini-budget to be presented in the National Assembly on Friday. It was decided to bring down the taxable ceiling from Rs12,00,000 to Rs8,00,000 and the import duty on luxury items would also be increased.

The government would slash expenditures and revise all macroeconomic targets for the fiscal year 2018-19 in the mini-budget. The approval of the amended Finance Act 2018 is imperative for the government's forthcoming engagements with the International Monetary Fund (IMF). The Fund would send a team to Islamabad on September 27 for a week of discussions on Pakistan's balance of payments crisis.

From these parleys, Finance Minister Asad Umar and other top officials would gauge the likely conditions of a prospective IMF bailout. Pakistan has previously undertaken 21 IMF programmes, without enacting most of the requisite structural reforms.

Anticipating tough terms, Asad Umar decided to first initiate remedial measures for Pakistan's record twin current account and budgetary deficits. This would empower Pakistan's position at the exploratory talks with the Fund representatives, before Asad heads to Bali, Indonesia for final negotiations at the annual meeting of the IMF and the World Bank on October 8-14. To reduce the budgetary deficit, the government has already decided to shelve 200-300 unapproved schemes. This would slash the development expenditure to Rs600-650 billion in 2018-19, from the current allocation of Rs1,030 billion.

These cuts would facilitate the revision of the projected budgetary deficit to hover around 5.3-5.5 percent of gross domestic product (GDP), from the unrealistic target of 4.9 percent set by the previous Pakistan Muslim League-Nawaz administration in May.

Under the proposed amendments to the 2018-19 budget, the government plans to rescind some of the tax exemptions extended to the high earners by the last government. It may also reinstate wealth tax on immovable assets. The proposals also envisage reducing by half the taxable income ceiling to Rs800,000 a year, and an increase in the maximum rate of income tax to 20-25 percent from the existing 15 percent. The consumption taxes on cigarettes, cars and luxury items are also likely to be increased. To curtail the current account deficit, the government plans to increase customs and regulatory duties on some 6,000 type of imported goods.

The proposed changes would facilitate the setting of a new revenue collection target. The Federal Board of Revenue collected Rs3,842 billion in the financial year which ended on June 30. The existing target for 2018-19 is an implausible Rs4,435 billion. The proposed changes to the budget would aid the government in changing the overly optimistic macroeconomic targets currently in place. The projected rate of Consumer Price Index-based inflation would increase from six percent to somewhere between seven and eight percent.

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