Islamabad, 22 May 2024, (GNP): On Tuesday, representatives from the Power Division briefed the visiting International Monetary Fund (IMF) delegation about revisions to the solar power policy.
They also highlighted that power consumers contribute Rs800 billion to the government annually through taxes on electricity bills, resulting in an increase of Rs8 per unit in the bills.
They conveyed to the Fund that if the mentioned taxation is removed, the tariff would decrease by Rs8 per unit. Additionally, power consumers also incur charges for electricity duty, PTV fee, and surcharges in their bills.
Yet, discontinuing all taxation on electricity bills isn’t feasible. Instead, it should be reduced by Rs100-200 billion annually, potentially alleviating the burden on consumers by Rs1-2 per unit. Tax authorities ought to expand the tax base significantly by including retailers, the real estate sector, and agriculture, to mitigate the impact.
The Federal Bureau of Revenue (FBR) cannot reduce the 17% General Sales Tax (GST), which alone generates Rs600 billion in government revenue from electricity bills. However, other taxes totaling Rs100-200 billion could be removed from electricity bills.
Furthermore, the top management of the Power Division has briefed Prime Minister Shehbaz Sharif about the substantial taxation on electric power consumers and its effects on the tariff.
“Right now country’s power sector is no longer sustainable, reliable and affordable, and we have to think over every option to make sure electricity at affordable”, official sources told the media.
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A power consumer is subjected to various charges on their electricity bills. These include:
– Electricity Duty (ED): A provincial duty ranging from 1.0% to 1.5% of Variable Charges.
– General Sales Tax (GST): Imposed at a rate of 17% on the total electricity bill under the Sales Tax Act 1990.
-PTV Licence Fee: Rs35 for domestic consumers and Rs60 for commercial consumers.
– Financing Cost Surcharge: Rs0.43 per kWh, applicable to all consumer categories except lifeline domestic consumers.
– Extra Tax: Charged at 5% to 17% on different bill amount slabs for industrial and commercial consumers not registered in the active taxpayer list of the FBR.
– Further Tax: Applied at a rate of 3% to consumers without a Sales Tax Return Number (STRN), excluding domestic, agriculture, bulk consumers, and street light connections.
– Additional Sales Tax: Commercial consumers face a 5% tax on bills up to Rs20,000 and 7.5% tax on bills exceeding Rs20,000.
– Income Tax: Levied at varying rates depending on the applicable tariff and the electricity bill amount.
Authorities are working on restructuring efforts aimed at maximizing efficiencies and reducing tariffs through efficiency gains. Additionally, plans are underway to convert power plants using imported coal to utilize local coal from Thar.
Changes in solar power policy
The IMF has been informed that approximately 1938 MW of electricity has been added to the system through rooftop solar systems operating under net metering mode.
Consequently, a revenue loss of Rs100 billion in the system has been shifted to consumers, resulting in a tariff hike of Rs1.90 per unit for those who have not installed solar systems on their roofs.
Changes are underway in the policy regarding the installation of solar panels by the public. The government plans to introduce gross metering instead of the current net metering system. Under this new system, tariffs would be reduced to Rs7.5 to 11 per unit from the current Rs21. Consumers would be provided electricity from the national grid at Rs60 per unit during nighttime or peak hours.
The IMF has been made aware that the country’s national grid is currently providing service to rooftop solar consumers at a cost, as they are not storing electricity through batteries. If consumers have a detached roof solar system, they would need to install large batteries to store solar energy for nighttime consumption, which would cost approximately Rs60 per unit.
In the new policy, the buyback tariff from solar consumers would be decreased to Rs7.5-11 per unit, considering the significant decline in solar panel prices. Additionally, electricity would be supplied to them from the national grid at Rs60 per unit during nighttime or peak hours.
Under the gross metering system, consumers are compensated at a fixed feed-in-tariff for the total units of solar energy generated and exported to the grid, as measured by a unidirectional gross meter.
Consumers must also pay the retail supply tariff to the power distribution company for power consumed from the grid. Total solar generation is measured by a bi-directional meter, while total power import is measured by a unidirectional meter.
