Let us get one thing straight. There is no immediate plan to change the basis of Pakistan’s household electricity bills from usage to income. What has happened, however, is that a proposal has been circulated through the power division suggesting such measures. The reason behind this idea?
As with most things in Pakistan’s energy landscape these days, it has to do with solar energy.
What is the proposal?
The entire matter is quite straightforward. Currently, household electricity bills in Pakistan are calculated based on how many units of electricity a household consumes in a month. The system operates through slab-wise rates, meaning the per-unit price increases with higher consumption. Consumers are categorized as lifeline consumers, protected consumers, and non-protected consumers. Depending on which of the first two categories a household falls into, they are given a certain level of subsidy.
The latest data indicate that out of the roughly 35 million grid-connected households, about 18.3 million (52 percent) use less than 200 units per month. These are the “lifeline” consumers that get the cheapest rate of electricity. The goal is to give a subsidised rate to households that have low consumption because of the income bracket they fall in. These households receive around 90 percent subsidy on the first 100 units and about 70 % subsidy on the next 100 units. The remaining households, consuming more than 200 units, pay higher per-unit charges along with fixed fees, FCA, taxes, and other surcharges.
For some time now, there have been quarters within the power division and the federal government that have sought to change this system. Under the current IMF programme there has also been a demand to rationalise subsidies in utilities.
The proposed reform aims to shift from this usage-based system to an income-based pricing model. This means that instead of determining relief based on usage, the government would assess household earnings to decide whether a household qualifies for subsidized rates. The main objective of this proposal is to ensure that subsidies are better targeted and only go to the people who actually cannot afford the full electricity rates. But doesn’t the current usage based slab system already ensure that. Well, apparently not anymore.
What is the rationale?
Under the current slab system, households with relatively comfortable incomes can still benefit from lower tariffs if they manage to keep consumption within certain limits. Conversely, some genuinely low-income families may lose protection if their usage slightly exceeds the threshold. By linking subsidies to income, the government hopes to make the system more equitable, so that only deserving consumers receive support.
A major reason for the government possibly wanting to pursue this system is the expansion of household solar usage. Think of it this way. If a person sets up a 10kW solar system on their rooftop and attaches batteries to their system, they can use the solar energy during the day and store more to use after the sun sets. Because they are using solar energy, it is entirely possible that this household consumes less than 200 units from the grid. In this case, because of the consumption basis, their bill will be subsidised. In that way, the subsidy will become a benefit for the wrong audience.
By switching the billing system to an income based one, it would avoid such slippages. Internationally, full income-based electricity pricing is rare, but some countries have experimented with targeted subsidy systems linked to income or socio-economic status. In India, for example, Karnataka’s Gruha Jyoti scheme provides free electricity up to a certain usage limit for eligible low-income households identified through social welfare registries. In Colombia, electricity tariffs and subsidies vary according to socio-economic strata, offering greater support to lower-income groups. Similarly, countries like Brazil and Mexico apply discounted electricity rates or subsidies for low-income households through social programs or welfare databases. These examples show that while income- or welfare-linked support can help target relief more effectively, implementing such systems requires robust household data and strong verification mechanisms — a significant challenge in countries with large informal economies like Pakistan.
The political sensitivities
The proposed shift to an income-based pricing model is also likely to generate political sensitivity and public debate. Domestic consumers, particularly middle-income households who currently benefit from subsidized rates under the slab system, may view the change as an additional financial burden. Opposition parties and consumer advocacy groups could criticize the government for potentially raising electricity bills for a large segment of households, framing it as unpopular and regressive. Even if the policy is aimed at targeting subsidies more effectively, the immediate perception among voters could be negative, creating challenges for the government in explaining the reform and managing public expectations.
This perception might be exacerbated for another reason. At the same time as this, the business community has been persistent in their complaints that despite being bulk buyers of electricity they are charged higher rates so others can be subsidised. By rationalising the subsidy through income rather than usage, the government can find room to provide cheaper electricity to industries. The idea for this is that because of rapid solarisation, the grid has more electricity than there is demand. If the grid electricity can be made cheaper, more bulk buyers might buy more electricity from the grid rather than going the route of setting up captive solar plants as many industries have done.
The optics of this, of course, will not be particularly pleasant. Households with solar installations that will be most affected are also the loudest and most visible when it comes to complaining. On top of this, it is entirely possible that deserving lower and lower-middle class households get caught in the crossfire. And that is where the most critical part of this plan comes, and likely why it will not work and never get to the implementation stage: how does the government plan on accurately assessing household income?
Is there a way to pull off the impossible?
A key question remains: how will the government accurately assess household income in a country where a large portion of the economy is undocumented or informal? Many households do not have official income records, making it extremely challenging to determine who qualifies for subsidies. Authorities may attempt to integrate the system with existing social protection databases, tax records, or national identity data, but gaps in information, errors in classification, and disputes over eligibility are likely. This raises the risk that some genuinely low-income households could be excluded from relief, while some higher-income consumers might still receive subsidized rates, complicating the reform’s effectiveness and fairness.
This reform is also connected to Pakistan’s ongoing discussions with the International Monetary Fund (IMF) regarding power sector restructuring. The IMF has emphasized the need to protect low- and middle-income groups while reducing distortions in the tariff structure. Another major concern is the growing circular debt in the power sector, a long-standing economic challenge. Circular debt accumulates when distribution companies fail to recover full costs, subsidies are delayed, and payments to power producers remain outstanding. Reforming tariffs is seen as part of a broader effort to stabilize the energy sector and reduce financial losses.
If implemented, the impact will vary across income groups. Low-income households could benefit if the system successfully identifies and protects them, even if electricity consumption fluctuates. Middle-income families may face higher bills if classified above the subsidy threshold, while high-income households are likely to lose subsidy benefits and may pay rates closer to the full cost of supply. Much will depend on how income levels are defined and verified.
Once again, it is important to note that no final notification has been issued yet. The proposal is still under discussion, and details such as income thresholds, implementation timelines, and verification mechanisms have not been officially announced. Until a formal decision is made, the current slab-based tariff system remains in place.
The post A proposal to base household electricity rates on income instead of usage is in the works. Here’s why it might make sense appeared first on Profit by Pakistan Today.