Senate Pushes for Electricity Tariff Cuts and Circular Debt Roadmap in FY2027 Budget

Pakistan's Senate on Thursday adopted 123 recommendations for the federal budget FY2026-27, calling for a reduction in electricity tariffs, withdrawal of fixed charges and GST from electricity bills, and a transparent roadmap to reduce capacity payments and circular debt — though the proposals carry no binding force on the National Assembly.

The motion was moved by Senator Saleem Mandviwalla, Chairperson of the Senate Standing Committee on Finance and Revenue. Under the Constitution, the recommendations are now transmitted to the National Assembly, which will consider them before the final budget vote but is not obligated to accept any of them.

Key Electricity and Energy Proposals

The upper house's energy-sector asks form the most consumer-sensitive part of the package:

• Allocation of budget funds for a direct reduction in electricity tariffs
• Targeted subsidies for low-consumption domestic consumers only, replacing the current broad-based subsidy approach
• Withdrawal of fixed charges, the financing cost surcharge, and GST from electricity bills
• A transparent roadmap for reducing capacity payments to independent power producers (IPPs) and unwinding circular debt — the chain of unpaid obligations between power generators, distribution companies (DISCOs), and the government

Capacity payments to IPPs have become a central driver of high per-unit electricity costs for households and businesses across Pakistan. The Senate's demand for a published reduction roadmap reflects growing parliamentary pressure on the Power Division to commit to a structured reform path rather than piecemeal relief.

Broader Tax and Consumer Relief Recommendations

The 123 recommendations extend well beyond electricity. On direct taxation, the Senate called for:

• Raising the income tax exemption threshold for low-income earners
• Reducing tax rates for salaried individuals squeezed by inflation
• Rationalising the 7.5–8 per cent income tax deducted at source into a simplified final tax regime
• Expanding targeted social protection programmes for vulnerable households

On consumption taxes, the Senate recommended cutting general sales tax (GST) on essential food items, medicines, educational material, and agricultural inputs, while avoiding new levies on basic necessities that disproportionately hurt lower-income groups. It also called for reduced duties on fertilisers, seeds, pesticides, and agricultural machinery.

Why These Proposals Face an Uphill Path

Senate budget recommendations are a constitutional formality: the National Assembly holds primacy over money bills and may accept, modify, or disregard Senate proposals entirely. Historically, a portion of recommendations has made it into final Finance Acts, particularly where cross-party consensus is strong.

Several electricity-related proposals also sit in direct tension with Pakistan's IMF programme commitments, which require maintaining cost-recovery electricity tariffs and limiting untargeted subsidies. Any across-the-board tariff cut or GST exemption on power bills would need to be carefully structured — and likely pre-cleared with the Fund — to avoid breaching programme conditions.