Pakistan: Ignominious retreat

Under pressure from the Supreme Court (SC), the government had little option but to withdraw its September 30 notification regarding the massive increase in the electricity tariff. While withdrawing the notification that had been declared by the SC as illegal, beyond the purview of the government, and which should rightfully have been left to the National Electric Power Regulatory Authority (NEPRA) to issue, the government has now requested NEPRA to review the tariff of the distribution companies and KESC. During the proceedings, the three-member bench headed by Chief Justice (CJ) Iftikhar Mohammad Chaudhry took not just the government, but also its Minister for Water and Power Khwaja Mohammad Asif and NEPRA Chairman Khwaja Naeem to task. The minister was embarrassed by being reminded by the CJ that he had argued during the rental power case before the SC that the federal government has no authority to influence the decisions of NEPRA. The CJ then went on to ask him why he was giving up his earlier stance. Khwaja Asif was only let off the hook once Attorney General Muneer Malik confirmed that the September 30 notification was indeed being withdrawn. NEPRA's Khwaja invited the wrath of the court when he tried to plead the case of the government, arguing that since it had already determined the tariff and bills according to the raised rates had been sent out to consumers, the decision should be allowed to stand. The CJ was severe on Khwaja Naeeem, questioning whether he was holding a government brief. During the proceedings, Justice Jawwad Khwaja once again raised the issue of the failure of the government to collect outstanding bills of Rs 441 billion, choosing instead to further burden honest bill payers through increased tariffs. Justice Khwaja termed this nothing less than exploitation under Articles 3, 14 and 24 of the constitution. Now while the wound is self-inflicted because of a surprising ‘memory lapse’ on the part of Khwaja Asif regarding the proper method, body, procedure for notifying tariffs, and the government has retreated before the correct focusing of the SC on the illegality involved, this should not be read as meaning that the government has abandoned its plan to increase tariffs. Khwaja Asif is trying to frighten the public by warning that the NEPRA review will mean even higher tariffs, while some analysts think this is a smokescreen for the government’s real intent to get NEPRA to do its ‘dirty’ work for it by re-notifying the same increases. Meantime the Federal Board of Revenue (FBR) has, in the name of filling the gap of General Sales Tax (GST) not being collected on over 40 items at the dealers, distributors and wholesalers’ stage of the supply chain, decided (reportedly in collaboration with the manufacturers) to raise the rate of GST at the manufacturing stage by 2 percent to 19 percent. This, according to reports, is because the manufacturers expressed their inability to print the retail price on all products, which would then have formed the basis for GST at the retail and intermediate stages of the supply chain. The manufacturers further argue that they cannot print a retail price that applies to the whole country since retail prices vary from market to market due to a variety of reasons. So now, as a result of the new move, the manufacturers will pay 19 percent GST; the intermediate and retail stages will pay nothing; documentation of the economy that could have been helped by the printing of retail prices on all products will suffer one more big setback; and the consumer will no doubt be subjected to higher prices on the excuse that GST has ‘gone up’ by 2 percent. This end result is foreseeable, judging by how the markets usually respond to such steps. All the ‘sophisticated’ arguments of the FBR regarding the measure not amounting to any new taxation cannot hide the ugly reality that price rises can be expected for all the listed items and a sympathetic rise in all products across the board. This will be one more ‘gift’ of the government to the masses groaning under backbreaking inflation, not to mention unemployment, law and order and terrorism. The government’s economic policy thrust seems focused on passing the burden of the economic crisis onto the shoulders of the already suffering masses. This may help the government and its business friends in the short term, but it has serious implications for the former in political terms.