The International Monetary Fund (IMF) has turned down Pakistan’s proposal to introduce a 1 percent water storage cess on all taxable goods to finance major dam projects, instead recommending an increase in the general sales tax rate if additional development funding is required.

The government had planned to levy the new cess to help fund the construction of the Diamer-Bhasha, Mohmand, and a proposed Chenab dam. However, the IMF raised concerns over legal, governance, and fiscal flexibility issues, and objected to the idea of handing revenue control to the Water and Power Development Authority (WAPDA), according to a report by the Express Tribune.

The IMF advised that any extra funding for development should either be sourced by reallocating within the existing Rs. 1 trillion development budget or by raising the current 18 percent general sales tax rate.

Revised estimates have pushed the cost of the Diamer-Bhasha dam to over Rs. 1.1 trillion, up from the original Rs. 479 billion. Despite this, only Rs. 25 billion has been allocated for the project this year, leaving a funding gap of Rs. 365 billion even on the initial estimate. The Mohmand dam, initially approved at Rs. 310 billion, now requires at least Rs. 173 billion more, with just Rs. 35.7 billion allocated for the current year.

The proposed Chenab dam is expected to cost Rs. 220 billion, bringing the total additional funding required for these three projects to Rs. 1.35 trillion.

As an alternative to imposing new taxes, the government is considering amending the Gas Infrastructure Development Cess (GIDC) law to redirect over Rs. 400 billion in unspent collections toward dam construction.