No more temporary fixes

Prime Minister Shehbaz Sharif has directed the concerned departments to extend the three-month relief on the Rs7.12 per unit increase in electricity prices for residential consumers using up to 400 units instead of only 200 units.

This move is encouraging, as it indicates that the government is considering providing relief where possible. However, a long-term and workable solution is urgently needed to provide the much-needed solace to people hard-pressed due to price hikes.

While generally utility bills are undoubtedly the most important and unavoidable expense of any household budget, electricity tops the list for its intrinsic value to the operations of daily life and is undeniably the highest of the household expenditure.

Although the amount of consumers’ electricity bills depends on the kilowatt hour (KWH) or units they consumed during the monthly billing period, it also includes several taxes and tariffs that are collected directly from the consumer which inflates the bill to levels of unaffordability for citizens. The recent public protests have validated the urgency for immediate resolution of the billing issue.

What needs to be understood is that the ownership of the taxation policy resides with the government. The hike in electricity bills is due to extra charges in the form of various taxes that the government imposes. While rising inflation and higher taxes are stretching resources across the socio-economic strata, it will have a particularly debilitating impact on the middle and lower classes. Families will be forced to reshuffle their spending priorities to make ends meet, and the composition of the family budget will change drastically.

The government has imposed several different taxes and duties on an average electricity bill. With the imposition of these taxes, Pakistan now has the highest levels of taxation on utility bills within the region, putting unprecedented strain on the financial resources of ordinary citizens. A regional comparative analysis puts us in a further quandary.

Our neighbouring countries have significantly lower electricity rates. In Afghanistan, electricity costs 2.5 Afghanis (approximately Rs3.92) per unit up to 200 units, while in Bangladesh, the rate is Tk7.20 (approximately Rs17.07) per unit for the same consumption level. India has a rate of INR6.29 per unit.

But in Pakistan, the electricity rate for domestic consumers has been increased from Rs5.72 to Rs7.12 per unit, with a sales tax of Rs48.84 per unit. After adjustments and taxes, the rate will exceed Rs65 per unit, putting an unjustifiable burden on the common man who is already battling inflation on all fronts.

An average electricity bill currently includes provincial electricity duties, General sales taxes, and PTV licence fees. Residential customers who are non-filers face an additional 7.5 per cent withholding tax on bills over Rs25,000. Commercial and industrial customers who are non-filers have to bear extra taxes ranging from 5.0 to 17 per cent of the bill amount, and further taxes of 3.0 per cent. A sales tax on commercial customers may also be levied on commercial bills at a rate of 5.0 per cent on bills up to Rs20,000 and 7.5 per cent on bills exceeding Rs20,000. In other countries in the region, only VAT and GST are included in the electricity bills.

These consumers are paying even more than the average price of Rs33 per unit after the fresh increase is enforced from July 2024. The government increased the electricity prices for 201–300 units by Rs7.12 per unit to Rs34.26. There are 2.2 million consumers in this category. Likewise, after a Rs7.12 per unit increase, the new rate for 301–400 units consumption is Rs39.15 per unit, excluding taxes and surcharges. There are about 591,000 consumers in this category.

Penalties for non-filers are a tool to integrate people into the tax net. But at the same time, the government needs to create the fiscal space within its budget through improved tax collection measures and improved governance measures.

A strong, long-term taxation policy is imperative to steer the people through the challenges of soaring inflation, depreciating currency, and mounting debt burdens. Addressing the root causes demands structural reforms to revamp the economic landscape. It is incumbent upon the government to enact prudent fiscal measures keeping in view the income of a middle-class family.

Considering the inactive status of many potential taxpayers, the focus should shift towards broadening the tax base, a longstanding issue with limited progress, rather than remaining fixed on taxing utilities.

The writer is a freelance contributor. He can be reached at: mycolachi@gmail.com