February 4, 2002	Monday	Ziqa’ad 20, 1422

THE 15 per cent sales tax, which has been hanging over the heads of the 11 million domestic electricity consumers of Pakistan more like a Sword of Democles has been finally dropped by the government.

Not only have they now to pay the hefty tax on the energy they consume each month but also the arrears of the last five months which will inflate their January bill in a very big way.

The government has been shrewd enough to impose the levy at a time when its impact on the current bill will be small during the winter months. But when the summer months begin with the rather affluent using air-conditioners who number around a million and others fans and air-coolers the bill will jump up and along with that the new sales tax demand.

The ultimate impact of the tax may be larger power theft as past experience of the rise in power bills had demonstrated. Hence the harassed power consumers have been clamouring for a drastic cut in the power theft which has ranged from one-third of the power produced by Wapda to 40 per cent output of the KESC after it had peaked to 60 per cent earlier for a while.

But now while the power theft and loss have really not come down significantly despite the efforts of both the power producers, power theft through more kundas and getting power supply bypassing the metres may increase further.

The government on its part had levied the 15 per cent GST by the middle of last year but as at that time Wapda and the KESC were increasing their power rates the government was shown to have come up with a subsidy equal to that amount and made the levy invalid. But now the exemption has been withdrawn.

Aware of the unpleasant consequences of imposing the 15 per cent levy the chairman of Wapda, General Zulfiqar Ali Khan, has made valiant efforts to get the government withdraw the GST conclusively. He took up the issue with President Pervez Musharraf as well; but could succeed only in delaying the levy which has now come with retrospective effect from August 8 last or with heavy arrears to pay.

General Zulfiqar has been seeking a substantial increase in the power tariff to reduce WAPDA’s current year financial deficit of Rs32 billion; but the National Electric Power Regulatory Authority (NEPRA) has not approved that which incenses the Wapda chief. The NEPRA instead suggested reduction in the power rates of Wapda and the KESC following the principle of automatic adjustment in power rates following variation in furnace oil prices. That has not been given effect by the government following the resistance of Wapda.

Now through the imposition of the GST the government will ultimately gain Rs9 billion a year and the Wapda and the KESC would be none the better for that.

The GST has been livid by the government on domestic consumers in stages following the demands of the international aid agencies, particularly the IMF, that all subsidies in the energy sector should be done away with. So General Zulfiqar’s appeal to President Musharraf has been of no avail. The official policy is to comply with the demands of the IMF.

But General Zulfikar has valid reasons to plead for avoiding the imposition of the GST on domestic power users. While he doesn’t say openly that will give a spur to larger power theft, he argues higher rates for power following the GST would reduce power consumption and result in fall in revenues for Wapda which is already in a critical financial mess.

Wapda’s earnings have been hit hard by the reliance of many factories on their own power units and on the need for it to buy power from the independent power producers (IPP). In addition higher power rates are one of the reasons for closure of large number of factories in Wapda region.

At such a time WAPDA does not afford consumption of its power output being reduced further by domestic consumers or larger theft and loss of power.

General Zulfiqar is also aware that after the 15 percent GST levy, and with retrospective effect for five months, he cannot press seriously for an immediate rise in power rates, and he may have to ask the government for a subsidy or loan write-off or new loans to tide over the financial crisis and pay its bills to the gas and coil companies supplying furnace oil.

In his plea to the government not to levy the sales tax he has admitted that energy rates in Pakistan are heavy and in fact the highest compared to Pakistan’s neighbours. And at a time when the energy rates are high in a poor country he does not have to add heavy taxes to that sector and increase the burden of the consumers.

While the government talks of low inflation in Pakistan and claims that as one of its economic success, the fact is the key utility rates are being pushed up. Gas rates have been rising substantially and will rise further during the next two years to bring them on level with oil prices.

What is notable is there is now not only a 15 per cent GST on gas bills but also the same rate even on the surcharge for late payment, showing the all intrusive nature of the GST.

High power rates have become a major issue deterring large scale industrial investment, increase in production and exports. A committee has been set up by to promote investment in Sindh with its finance minister Dr. Abdul Waheed Shaikh as chairman.At the first meeting of the committee on Wednesday investors, industrialists and exporters complained bitterly against the high energy rates.

The focus of the government and the power producing companies has now to be on lowering energy prices by reducing the power theft and loss of power. In fact the pace of development of the country is linked with success in this area than in raising the cost of energy whether by Wapda and through enhanced taxes on energy.

The government is bringing a tactical approach to levying GST on domestic use of power. Initially those who used 1,000 units and above are to be taxed who may number a million. Then will come those who use 700 MW, and thereafter those who use 300 units and finally those who consume above 50 MW while those who use below 50 MW would be categorised as lifeline consumers and exempted from GST.

In a city like Karachi with its congestion heavy polluted air and extensive respiratory ailments a great many are forced to use air conditioners even when they cannot afford it. It has become a matter of survival or an alternative to very heavy medical bills. Such persons have now to pay the GST.

One of the persistent charges against successive governments has been they have been wanting to boost the official revenues at the cost of economic growth and social sector development or the welfare of the common man. That policy continues despite the avowal of the military regime to promote a welfare state.

When the military took control of Wapda and the KESC and had military officers as their chiefs and also down the line the hope was they would have a real crack-down on the vast power theft, with around 49 to 50 pe