PAKISTAN'S ENERGY CRISES AND IT'S CIRCULAR DEPT / PROPERTY TAX

PAKISTAN'S ENERGY CRISES AND IT'S CIRCULAR DEPT:

Pakistan has a big problem with its power sector. The power sector is the part of the economy that makes and delivers electricity. The problem is that Pakistan does not have enough electricity for its people or businesses. The country faces frequent power cuts, high electricity prices, poor service quality, and environmental damage. This problem is caused by many years of bad governance and policies in the power sector.

One of the main causes of this problem is circular debt, which is a type of public debt that builds up in the power sector because of subsidies and unpaid bills. Subsidies are money that the government gives to some consumers to help them pay for electricity. Unpaid bills are money that some consumers do not pay for electricity. Circular debt happens when an entity that has cash flow problems does not pay its suppliers or creditors. Cash flow problems are when an entity does not have enough money to pay for its expenses. Suppliers and creditors are entities that provide goods or services or lend money to another entity. When one entity does not pay its suppliers or creditors, it causes problems for other entities that are also part of the payment chain.

WHAT IS CIRCULAR DEBT?

Circular debt is a situation where one entity owes money to another entity, which in turn owes money to another entity, and so on. This creates a vicious cycle of debt that keeps growing over time.

In Pakistan's power sector, the main sources of circular debt are the electricity-making and delivering companies, such as WAPDA, DISCOs, and GENCOs. They are unable to recover their costs from consumers because of low tariffs, high losses, theft, and inefficiency. Tariffs are prices that consumers pay for electricity. Losses are the electricity that is wasted or stolen during moving or delivery. Theft is when some consumers use electricity without paying for it. Inefficiency is when some entities use more resources than necessary to make or deliver electricity. They also face delays in receiving subsidies from the government, which are often too little to cover their expenses. As a result, they owe a lot of money to independent power producers (IPPs), fuel suppliers, and other creditors. IPPs are private companies that make electricity and sell it to the government or other entities. Fuel suppliers are companies that provide oil, gas, coal, or other fuels to make electricity. Other creditors are banks or other entities that lend money to the power sector entities.

According to the latest data, the circular debt of Pakistan's energy sector has reached a very high level of Rs4.177 trillion ($23.6 billion). The circular debt in the electricity sector is Rs2.277 trillion ($12.9 billion), while Pakistan State Oil’s (PSO) debt is Rs600 billion ($3.4 billion). PSO is a state-owned company that supplies oil and gas to the power sector and other sectors. The circular debt in the gas sector is Rs1.400 trillion ($7.9 billion). The circular debt is increasing by Rs129 billion ($0.7 billion) per year.

HOW CIRCULAR DEBT AFFECTS PAKISTAN'S ENERGY SECTOR?

Circular debt has negative impacts on Pakistan's economy and society. It affects the financial health of the power sector entities, worsens the energy shortage, increases the cost of living, and harms the environment.

Circular debt makes the power sector entities financially weak, reduces their ability to invest in new capacity and maintenance, increases their dependence on expensive and imported fuels, and exposes them to default risks. Financially weak means that they do not have enough money to run their operations or pay their debts. New capacity means new power plants or equipment that can make more electricity. Maintenance means repairing or upgrading existing power plants or equipment to keep them working properly. Default risks mean that they might not be able to repay their loans or obligations.

Circular debt also reduces the confidence of investors and creditors, discourages private sector involvement, and increases the fiscal pressure on the government. Investors and creditors are entities that provide money or resources to another entity in exchange for a return or benefit. Private sector involvement means the involvement of private companies or individuals in making or delivering electricity. Fiscal pressure means pressure on the government's budget or finances.

Moreover, circular debt worsens the energy shortage, lowers the quality and reliability of service, increases the cost of production and living, and affects the welfare of consumers and businesses. Energy shortage means not having enough electricity to meet the demand or needs of people and businesses. Quality and reliability of service mean how well or consistently electricity is delivered to consumers without interruptions or fluctuations. Cost of production and living means how much money it takes to make goods or services or to buy basic needs. Welfare means well-being or happiness.

Circular debt also has environmental consequences. It forces the power sector entities to rely on inefficient and polluting sources of energy, such as oil and coal. This increases greenhouse gas emissions and contributes to climate change. Greenhouse gas emissions are gases that trap heat in the atmosphere and cause the Earth's temperature to rise. Climate change means changes in the Earth's weather patterns and conditions that affect people and nature negatively. It also causes air pollution and health problems for the people.

WHAT CAN BE DONE TO SOLVE CIRCULAR DEBT?

To solve the circular debt problem, Pakistan needs to make major reforms in its power sector. Some of the important steps include:

• Adjusting tariffs to reflect costs and eliminating subsidies
• Improving billing and collection efficiency to reduce losses and theft
• Improving governance and accountability of power sector entities
• Promoting competition and private sector involvement
• Diversifying energy sources and increasing renewable energy share
• Improving energy efficiency and conservation
• Strengthening regulatory framework and enforcement
• Mobilizing domestic and external resources for investment

These reforms require strong political will, institutional capacity, stakeholder consensus, and public support. They also need to be in line with the broader economic and social policies of the government. Only then can Pakistan overcome its power problem and achieve sustainable development.

CONCLUSION:

Circular debt is a big problem that plagues Pakistan's power sector. It is a result of poor governance and policies that have been followed for decades. It affects the financial health of the power sector entities, worsens the energy shortage, increases the cost of living, and harms the environment. To solve this problem, Pakistan needs to undertake comprehensive reforms that can improve the efficiency, reliability, affordability, and sustainability of its power sector.

PROPERTY TAX:

Property tax is a type of tax that you pay on the value of your property, such as land or buildings. It is usually calculated by a local government where your property is located and paid by you as the owner of the property. Property tax is used to fund public services and improvements that benefit the community, such as roads, schools, libraries, fire protection, etc.

In Pakistan, property tax is a provincial tax, which means that each province has its own rules and rates for property tax. Property tax is based on the annual rental value of your property, which means how much rent you could get if you rented out your property. Property tax rates and valuation tables vary by province and by type of property. Generally, residential properties have lower tax rates than commercial properties, and urban properties have higher tax rates than rural properties. Property tax rates also depend on whether the property is rented out or self-occupied, with rented properties having higher tax rates than self-occupied properties.

Property owners have to pay property tax every year to the provincial excise and taxation department. They can pay their property tax online or through designated banks. Property owners can also apply for exemptions or discounts for the property tax if they meet certain criteria, such as being senior citizens, widows, disabled persons, etc.

TYPES OF TAXES:

Types of taxes related to property in Pakistan that are collected by the Federal Board of Revenue (FBR). These include:

Capital Value Tax (CVT): This is a tax that you pay when you buy a property. It is 2% of the recorded value of the property.

Capital Gains Tax (CGT): This is a tax that you pay when you sell a property and make a profit. The tax rate depends on how long you have owned the property and how much profit you have made. The tax rate ranges from 5% to 20%.

Withholding Tax (WHT): This is a tax that both the buyer and the seller pay when they transfer a property. The tax rate depends on whether they are income tax filers or not. The tax rate for filers ranges from 1% to 2%, while the tax rate for non-filers ranges from 4% to 5%.

These taxes are part of the income tax system in Pakistan and are used to fund federal government expenditures.

Changes and Updates in Property Tax System in Pakistan in 2023

In 2023, there are some changes and updates in the property tax system in Pakistan that you need to be aware of. These are:

Deem Tax: This is a new tax that is imposed on unused or additional properties worth more than Rs. 25 million. The government assumes an income of 5% of the fair market value of such properties and taxes it at 20%. This means that you have to pay 1% of the value of your extra properties as deem tax every year. This does not apply to your first property whether house or plot. This measure aims to discourage hoarding of properties and encourage productive use of land.

Capital Gain Tax Period: The period for capital gain tax has been increased from 4 years to 6 years. This means that if you sell your property within one year, you have to pay 15% tax on your profit; if you sell it after two years, you have to pay 12.5% tax; if you sell it after three years, you have to pay 10% tax; if you sell it after four years, you have to pay 7.5% tax; if you sell it after five years, you have to pay 5% tax; if you sell it after six years, you have to pay 2.5% tax; and if you sell it after seven years or more, you don't have to pay any capital gain tax.

Advance Tax Rate: The rate of advance tax on sale and purchase of property has been increased for both filers and non-filers. For filers, the rate has been increased from 1% to 2%; for non-filers, the rate has been increased from 4% to 6%. This means that both the buyer and the seller have to pay more advance tax at the time of transfer of property.

These changes are expected to generate more revenue for the government and also to regulate the real estate sector in Pakistan. However, they may also have some negative impacts on the property market, such as reducing the demand and supply of properties, increasing the cost of transactions, and discouraging investment and development.

Reasons and Impacts of Changes and Updates in the Property Tax System in Pakistan in 2023

The main impacts of these changes and updates in the property tax system in Pakistan in 2023 are:

Positive impacts: These changes and updates may have some positive impacts on the property market and the economy, such as:

Increasing tax revenue for the government: These changes and updates may increase tax revenue for the government, which can be used to finance public services and improvements that benefit the community.

Curbing tax evasion and corruption: These changes and updates may curb tax evasion and corruption in the real estate sector, which can improve governance and trust in the system.

Promoting economic growth and development: These changes and updates may promote economic growth and development in the country, which can improve living standards and well-being of the people.

Negative impacts: These changes and updates may also have some negative impacts on the property market and the economy, such as:

Reducing demand and supply of properties: These changes and updates may reduce demand and supply of properties, as they increase the cost of transactions and discourage investment and development. This may lead to lower sales volume, lower prices, lower profits, lower returns, lower growth, etc.

Increasing inflation and interest rates: These changes and updates may increase inflation and interest rates, as they increase the money supply and demand in the economy. This may lead to higher costs of living, higher costs of borrowing, higher risks of defaulting, lower savings, lower investments, etc.