The implementation of property tax has once again hit a roadblock as the International Monetary Fund (IMF) expressed concerns over Pakistan’s request to reduce withholding tax by 2%. According to sources, the IMF has also instructed the government not to relax taxes on tobacco and beverages while prohibiting government intervention in wheat procurement. Furthermore, Pakistan has been asked to provide additional assurances to secure a staff-level agreement for the ongoing $7 billion Extended Fund Facility (EFF) review.
The IMF has outright rejected Pakistan’s request for a 2% reduction in withholding tax on real estate transactions and has also opposed a revision of the March 2025 economic targets. Despite initial talks, no formal agreement has been signed regarding tax reductions, and the proposal to ease taxation on tobacco and soft drinks has also been dismissed.
Meanwhile, the IMF has agreed to include Climate Finance in Pakistan’s financial assistance framework, which is expected to help the country combat the effects of climate change. Additionally, the IMF has allowed the government to raise PKR 1,257 billion from banks while showing conditional approval for a partial reduction in property tax.
Previously, the IMF had approved a partial concession to lower the withholding tax on property purchases by April 2025; however, the tax on property sellers remains unchanged. The government’s proposal to lower electricity tariffs significantly also failed to gain IMF approval, delaying the signing of the staff-level agreement (SLA) for the EFF’s first six-month review.
Amid media reports suggesting that Prime Minister Shehbaz Sharif would announce an 8 PKR per unit reduction in electricity tariffs on March 23, no such relief package was mentioned in his Pakistan Day speech. Instead, the Prime Minister chaired a high-level energy sector meeting, attended by key energy, finance, and privatization ministers, where discussions centered around electricity tariffs and the broader energy crisis.
On March 15, the Prime Minister’s Office announced that petroleum prices would remain unchanged, despite recommendations from the oil regulator and the petroleum division to cut fuel prices by PKR 13 per liter. The government initially pledged to pass on the financial relief from fuel prices to electricity consumers. However, the proposed electricity tariff reduction plan required IMF approval, which is still pending as the fund continues its economic performance review for the fiscal year 2025.
During the March 4-14 discussions, Pakistan presented an IMF proposal to renegotiate contracts with Independent Power Producers (IPPs), aiming to save costs and lower power tariffs by PKR 2 per unit. However, in a later move, authorities considered raising the petroleum levy by PKR 10 per liter, which is legally capped at PKR 70 per liter under the Finance Act 2025. The additional revenue from this increase would be used to offset electricity tariff reductions, potentially reducing power rates by PKR 2-2.50 per unit.
A senior government official clarified that the IMF should not oppose this move, as increasing the petroleum levy while reducing electricity tariffs is a revenue-neutral action with no additional subsidies or financial burdens.
NEPRA’s Challenges and Solar Net Metering Policy Debate
The National Electric Power Regulatory Authority (NEPRA) is currently reviewing requests from power distribution companies (DISCOs) for adjustments to the annual base tariff. Despite government intentions, only 6-7 IPPs have formally submitted tariff adjustment requests to NEPRA. Additionally, the regulator is set to decide on proposed changes to Pakistan’s solar net metering policy.
During a high-level energy sector meeting chaired by the Prime Minister, discussions also covered criticism from former finance minister Miftah Ismail, who publicly opposed changes to the net metering policy. The Prime Minister’s Office issued a statement reaffirming the government’s commitment to promoting renewable energy and directed officials to counter public concerns with facts and data.
The Economic Coordination Committee (ECC) has already approved a two-thirds reduction in net metering tariffs for future solar energy users, signaling a shift towards large-scale private sector energy projects. Furthermore, the Prime Minister has instructed authorities to expedite the privatization of power generation and distribution companies, emphasizing the need for a strategic roadmap to reduce electricity prices for consumers.
While the government aims to provide around PKR 5 per unit relief to electricity consumers, it must first secure IMF approval by backing its financial projections with concrete economic data. The ongoing negotiations highlight Pakistan’s struggle to balance fiscal policy, taxation reforms, and energy affordability while meeting IMF’s stringent conditions for continued financial support.