Income-Based Electricity Billing Proposal Under Review

Let us state clearly at the outset: there has been no official notification changing the basis of domestic electricity billing in Pakistan from consumption to income. What currently exists is an internal proposal circulated within the Power Division contemplating such a structural shift. The rationale behind this potential reform is tied to emerging distortions in Pakistan’s energy pricing framework, particularly those arising from accelerated rooftop solar adoption and ongoing commitments to subsidy rationalisation.

Under the existing regime, domestic electricity tariffs operate on a slab-based consumption model. Households are billed according to the number of units consumed per month, with per-unit charges increasing as usage rises. Consumers are categorised as lifeline, protected, or non-protected. Of the roughly 35 million grid-connected households in Pakistan, approximately 18.3 million — about 52% — consume fewer than 200 units monthly. These households typically qualify for substantial subsidies, receiving nearly 90% subsidy on the first 100 units and approximately 70% on the next 100 units. Consumers exceeding 200 units pay higher per-unit rates along with fixed charges, fuel price adjustments, taxes, and other statutory levies.

The underlying assumption of this structure is that lower consumption reflects lower income, thereby justifying targeted relief. However, policymakers increasingly question whether that correlation remains reliable. The proposal under discussion seeks to replace consumption-based eligibility with an income-based assessment model. In practical terms, subsidised electricity rates would be granted based on verified household earnings rather than the volume of electricity consumed. This concept aligns with broader fiscal reform discussions, including Pakistan’s commitments under its programme with the International Monetary Fund, where improved targeting of subsidies and reduction of untargeted fiscal leakages have been emphasised.

One of the primary drivers behind this reconsideration is the rapid expansion of household solar installations. A financially well-positioned household operating, for example, a 10kW rooftop solar system with battery storage may substantially reduce its reliance on grid electricity and remain within the sub-200-unit threshold. Despite possessing significant economic capacity, such a household could still qualify for subsidised rates under the current slab system. From a public finance perspective, this creates subsidy leakage, whereby relief intended for low-income consumers extends to higher-income solar adopters. An income-linked framework, proponents argue, would better align subsidy allocation with actual financial need rather than consumption behaviour.

Internationally, fully income-based electricity pricing remains uncommon, though several countries employ targeted welfare-linked mechanisms. Jurisdictions such as India, Colombia, Brazil, and Mexico utilise social registries or socio-economic stratification systems to direct utility subsidies toward vulnerable populations. However, these models depend on robust, digitised, and verifiable income data — a significant operational challenge in economies where large segments remain undocumented or informal, as is the case in Pakistan.

The proposed shift carries considerable political and commercial sensitivities. Middle-income households that presently benefit from slab-based subsidies may experience increased bills if reclassified above income thresholds. This segment of the population is often both politically active and publicly vocal. At the same time, industrial and commercial consumers have long argued that elevated tariffs imposed on them effectively finance cross-subsidisation of domestic users. An income-based rationalisation could, in theory, create fiscal space to reduce industrial tariffs, particularly in a context where grid demand is softening due to private solarisation and surplus generation capacity exists. Nevertheless, the optics of lowering industrial tariffs while tightening household subsidies could generate significant public debate.

The most formidable obstacle to implementation lies in income verification. Pakistan’s tax documentation framework does not comprehensively capture actual household earnings, especially within the informal sector. Many households lack formal income records, and even where documentation exists, declared income may not reflect economic reality. Authorities could attempt integration with tax databases, national identity records, and existing social protection programmes. However, risks of misclassification, exclusion of deserving households, administrative disputes, and compliance challenges would be substantial. From a legal and regulatory standpoint, inadequate safeguards could lead to increased litigation and grievance proceedings.

This proposal must also be viewed within the broader context of Pakistan’s persistent power sector circular debt. The accumulation of circular debt results from under-recoveries, delayed subsidy disbursements, and inefficiencies in distribution companies. Tariff reform is being examined as one component of a wider restructuring effort aimed at improving cost recovery, stabilising the sector’s finances, and meeting reform benchmarks under international financing arrangements. Simultaneously, policymakers have reiterated the need to shield low- and middle-income groups while reducing structural distortions in pricing.

Should an income-based model ultimately be adopted, its impact would vary across income brackets. Properly identified low-income households could receive more stable and predictable protection, irrespective of minor consumption fluctuations. Middle-income families may face higher tariffs if deemed ineligible for relief, while higher-income households would likely transition toward cost-reflective rates. The practical consequences will depend entirely on how income thresholds are defined, verified, and enforced.

At present, however, the slab-based consumption system remains legally operative. No final decision, notification, or implementation framework has been issued. Critical details — including eligibility criteria, verification mechanisms, timelines, and dispute resolution processes — remain undefined. For taxpayers, solar adopters, and industrial stakeholders, this remains a policy discussion under consideration rather than an enacted reform.