Islamabad:
The International Monetary Fund rejected Pakistan’s proposal to impose 1% of water storage on goods to build mega dams and rather suggested increasing the standard sales tax rate by 18% to finance any enlarged size of the federal development program.
The development occurred in the middle of a planned revision of the cost of the Diamer-Basha dam and a need for funds to build a new Chenab dam on the Chenab river, which will require at least 800 billion additional rupees, according to government sources.
Official sources have said that the world lender had not approved the proposal to impose the water storage cess, which the government wanted to introduce to all taxable products produced in the country, with the exception of electrical energy and drugs. The Cess was proposed to finance two mega water storage dams and build a new one as a solution to cope with the Indian water aggression.
Development pushes the government in a tight place, which was willing to increase the tax burden, but only in a way that would guarantee that 100% of the collection remains in the federal kitty instead of being shared with the provinces.
In the event of Cess, the government will have full right on the collection while the sales tax would be part of the federal divisible pool.
The government had requested the authorization of the IMF to impose the new tax after the majority of provincial governments have shown a reluctance to finance the early completion of the Diamer-Bhasha dam and the Mohmand dam. The government had proposed that the provinces choose half of the cost of 716 billion rupees of the Benazir income support program and that the budgetary space of 358 billion rupees will be used to build dams at a faster rate to cope with Indian aggression. The provinces refused.
The spokesman for the Ministry of Finance Qumar Abbasi did not comment on development.
Sources said the IMF had many objections to the water storage storage proposal, including legal challenges and governance. They added that the fund was of the opinion that any special tax reduces the flexibility of the budget and that the sales tax can give such flexibility.
In addition, 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 in the RS1 Billions public sector development program (PSDP). But the government was not inclined to obtain more money from the PSDP, which this year focused more on the needs of coalition partners than having mega strategic projects as a national priority.
The sources said that the IMF informed Pakistan than if he wanted to get more money for development spending, he may consider increasing the rate of sales tax.
The standard sales tax rate is 18% while the government also has an additional 3% sales tax rate in case a property is sold to an unregistered person.
The government’s previous decision to increase the rate of oil withdrawal to give electricity subsidies and found a road in Balutchistan has led to an abnormal increase in diesel and petrol prices since July 1.
The terrestrial cost of diesel is RS177.89 per liter and RS168,73 of petrol by liter, excluding all types of margins, the impact of rupees and taxes. However, after adding these additional costs, the price of high -speed diesel is set at RS284.35 and gasoline at Rs272.15 per liter.
Seven years ago, the government approved the Diamer-Bhasha dam at a cost of 479 billion rupees and Mohmand at RS310 billion. The sources have indicated that the revised estimates suggest that the cost of the Diammer Basha dam could skyrocketing more than RS1.1 Billions, an addition of around 620 billion rupees. The exact cost will be determined when the Ministry of Town Planning receives the revised documents.
Even against the original cost of 479 billion rupees, the government needed 365 billion rupees plus to complete the work. For this exercise, only 25 billion rupees were allocated to the Diamer Basha dam, which is even less than the last exercise.
Likewise, the Mohmand dam was approved at the cost of RS310 billion seven years ago and still requires a minimum of RS173 billion more at the old price. Only RS35.7 billion was allocated for the new exercise.
Likewise, the government plans to build a dam on the Chenab river with a cost of around 220 billion rupees. This requires one billion additional rupees for the Chenab dam and the Diamer-Basha dam. After adding the remaining funding requirements, the government needs a total of RS1.35 Billions for these three dams.
India has threatened to cut the water supply after having held the Indus Water Treaty (IWT) in violation of the provisions of the Treaty and in the violation of international law. Islamabad clearly told India that such an act would be considered an act of war.
For this exercise, the government has reduced the development budget of the water sector by 28% to Rs133 billion. Now he wants to compensate for this by introducing a new tax.
One of the options is that instead of leaving a new stop by 1% or increasing the TST rate, the government should modify the GIDC law and divert people already collected on 400 billion rupees towards the construction of dams.
The Ministry of Water Resources has informed the government that it would take 15 years to finish the Mohmand dam and more than 20 years to finish work on the Diamer-Bhasha dam at the current rate of budget allowances.
Ahsan Iqbal, the Federal Minister of Planning and Development, has already excluded the creation of any other space in the PSDP to finance major projects.
The government has held meetings this week at the Prime Minister’s Ministry of Planning and Office in order to finalize a strategy for financing other projects, which can be completed and to be inaugurated by Prime Minister Shehbaz Sharif this year.
