ISLAMABAD
Pakistan would meet new IMF's benchmarks including privatisation of Faisalabad Electric Supply Company (FESCO) by June 2016 and to determine and notify multi-year tariffs for three power distribution companies FESCO, IESCO, and LESCO by end-November 2015.
"We appointed financial advisors for share sales of Faisalabad Electric Supply Company (FESCO) in July 2014. We will complete the bidding process by end-June 2016", Pakistan has stated in Memorandum of Economic and Financial Policies written to the IMF along with Letter of Intent (LOI). Earlier, Pakistan had earlier assured the Fund to complete the privatisation of FESCO by Mach next year.
According to the second of the three benchmarks, the government will prepare and submit to the National Assembly draft legislation against "benami" transactions, which are commonly used to evade taxes by end-January 2016. The government will determine and notify multi-year tariffs for FESCO, IESCO, and LESCO by end-November 2015 with the remaining ones done annually on a rolling basis, stated the third benchmark.
Pakistan has admitted that power collections had declined on average by 1 percent to 88.1 percent during previous year, primarily due to two Discos (without naming). Overall losses in FY2014/15 remained at 18.7 percent. To address increased losses in some Discos, the chief executives and some members of senior management of poorly performing Discos have been replaced, and we are working with provincial governments to address their payment problems. We will work on improving the average performance of the sector further in FY2015/16.
Pakistan has informed the Fund that power subsidies would reduce to 0.3 percent of the GDP (Rs92.6 billion) during current financial year 2015-16. The stock of past arrears, including the PHCL (Power Sector Holding Company Limited), in the syndicated term credit finance (STCF) facility remained at Rs335 billion at end-June 2015.
Pakistan further started that number of taxpayers filing for income tax return have enhanced to 912,000 as of August 4, 2015 from 722,000 on July 1, 2013 after the government issued 200,000 first notices to bring more potential taxpayers into the revenue base. Meanwhile, out of 15,000 large retailers identified, the government had registered 6,000 retail outlets in FY2014/15.
Talking about the tax reform, Pakistan said, "We will continue to strengthen the culture of taxation by aggressively pursuing tax evaders, avoiding tax amnesty schemes, and adopting a programme of comprehensive reform of the tax institutions. We will further improve our enforcement efforts on non-filers who have the potential to contribute at least the average tax paid by currently registered taxpayers and especially large corporations and high wealth individuals".
The government further stated that Parliament is discussing draft amendments to the Anti-Money-Laundering Act (AMLA) that will include serious tax crimes in the Schedule of Offenses and enable the use of AML tools to combat tax crimes. We are committed to adopting these amendments by end-November 2015. Subsequently, we will amend applicable regulations in line with international standards. The IMF jointly with the World Bank and Asian Development Bank, pointed to the need for alternative plans to protect the level of revenue in the electricity sector in case of a negative outcome of legal challenges to electricity surcharges, as the Supreme Court's decision on this issue is still pending.
The IMF has projected Pakistan's economic growth at 4.5 percent this year (from about 4.2 percent in FY 2014/15), supported by ongoing strength in services and construction, lower oil prices, expected improvements in the supply of gas and electricity, investment related to the China Pakistan Economic Corridor (CPEC), and an improving investment climate. Meanwhile, inflation is expected to rebound to about 4.7 percent this year (on average), due to the likely bottoming out of commodity prices.