Photo courtesy PID
The federal cabinet on Tuesday night approved a 1 percent increased to the general sales tax (GST) rate as well as a significant hike to taxes on cigarettes, with an aim to collect Rs. 115 billion in additional taxes to fulfill the International Monetary Fund (IMF)’s demands for reviving a stalled bailout program.
According to Finance Minister Ishaq Dar, the global lender is requiring the government to enact policies that will collect Rs. 170 billion in additional taxes prior to releasing the next tranche of an Extended Fund Facility that is seen as key to averting default and rebuilding the country’s critically low foreign exchange reserves. The new measures approved by the cabinet—and subsequently notified by the Federal Board of Revenue (FBR)—are expected to net Rs. 115 billion of the required sum. The remaining Rs. 55 billion would be secured through a “mini-budget” that would be tabled in Parliament today (Wednesday).
The new taxes approved by the cabinet raised the GST from 17 percent to 18 percent. Additionally, they have enhanced the federal excise duty (FED) on cigarettes, with immediate effect. According to the FBR’s notification, the FED on “expensive” cigarettes has been increased by 153 percent from Rs. 6.5/cigarette to Rs. 16.5. For cheaper brands, the FED has been increased 98 percent from Rs. 2.55/cigarette to Rs. 5.05. According to Dar, the cabinet has the mandate to increase the GST without requiring parliamentary approval, while the FBR is the relevant authority for enhancing the FED on cigarettes. However, legal cover would be assured by including these increases to the Finance Bill, 2023 that is to be tabled in both houses of Parliament.
Earlier, the government had planned to impose the additional taxes through a presidential ordinance but in a meeting with the finance minister, President Arif Alvi “advised” that it would be more suitable to call a session of Parliament and take lawmakers into confidence.
According to local media, among the sectors facing additional taxes through legislation are airline tickets; imported mobile phones; sugary beverages; and cement.
Progress on MEFP
The finance ministry, meanwhile, has responded to the draft of the Memorandum of Economic and Financial Policies (MEFP) shared by the IMF, as virtual discussions for the revival of the stalled program continue. The MEFP was shared with the government after 10 days of talks in Islamabad that ended without a formal deal. According to sources within the finance ministry, the IMF is requiring Pakistan to implement all prior conditions before committing to a staff-level agreement, partially because it is jittery about disbursing funds in light of the multiple times the state has reneged on its earlier commitments.