ISLAMABAD - After giving an ‘electric shock’ to the helpless masses, the government is preparing to drop another inflationary bomb by imposing a new gas levy that would increase the gas prices in the country.
As per conditions of the $6.64 billion bailout package, the government had committed with the International Monetary Fund (IMF) to introduce new gas levy by December this year. The new levy would raise around Rs 105 billion (0.4 percent of the GDP) for the cash-strapped government, but at the cost of another major inflationary wave in the country.
"By end-December 2013, we will implement a new gas levy that will increase revenue by 0.4 per cent of GDP on an annualised basis. This package is the first step towards a more efficient and equitable tax system," Pakistan had committed in writing with IMF.
Sources in finance ministry informed The Nation that government would either have to bring finance bill in the parliament for the introduction of new tax – that could be called a 'mini budget' –, or it could do it through a presidential ordinance.
A ministry source said that government would announce a rationalisation plan and introduce the new gas levy by December-end. The current level of gas supply is barely one half of unconstrained demand due to low prices and insufficient investment. He said that they would gradually rationalise gas prices to continue encouraging new investment, promote efficiency in gas use, but there would continue to be no fiscal cost from the gas sector.
The government has already taken unpopular decisions of increasing the power tariff in a view to gradually withdraw subsidy as agreed with the IMF. The government enhanced the domestic and agricultural power tariffs by 40-176 percent in the start of this month. Earlier in August, it had enhanced power tariff for commercial consumers. The government would gradually withdraw the entire power subsidy in three years for all consumers, except domestic consumers using 0-200 units per month. Economic experts believe that inflation would sharply increase in the country in the months to come due to the aforesaid measures of the government and introduction of new gas levy would push it further up.
They opined that after these tariff hikes and imposition of new taxes it would be too difficult for the PML-N government to restrict inflation at eight percent during the upcoming financial year.