The International Monetary Fund (IMF) has turned down Pakistan’s plan to introduce a 1 percent water storage cess on taxable goods to finance major dam projects. Instead, the Fund has recommended that the government consider raising the existing 18 percent General Sales Tax (GST) if it needs more resources for development.
Islamabad had hoped the proposed levy would help secure much-needed funds for the Diamer-Bhasha, Mohmand, and the proposed Chenab dams. However, IMF officials raised concerns over legal and governance challenges, as well as the potential lack of fiscal flexibility. The Fund also opposed giving revenue control to the Water and Power Development Authority (WAPDA), according to a report by The Express Tribune.
The IMF advised that any additional spending should either be covered by reprioritizing the Rs. 1 trillion development budget or by adjusting the GST rate.
Pakistan faces a steep funding gap for its hydropower ambitions. The revised cost of the Diamer-Bhasha dam has risen to over Rs. 1.1 trillion from the earlier estimate of Rs. 479 billion. Even based on the original figure, Rs. 365 billion is still required, while this year’s budget allocates only Rs. 25 billion. The Mohmand dam, initially approved at Rs. 310 billion, now needs at least Rs. 173 billion more, yet just Rs. 35.7 billion is set aside.
The proposed Chenab dam is expected to cost around Rs. 220 billion. Altogether, these three projects demand an additional Rs. 1.35 trillion.
As an alternative, the government is considering amending the Gas Infrastructure Development Cess (GIDC) law to channel more than Rs. 400 billion in unutilized collections toward dam construction instead of introducing a fresh tax.
