Government plans to collect Rs 170 billion in revenue through additional tax measures
Finance Minister Ishaq Dar on Wednesday tabled the 2023 (supplemental) finance bill – or the “mini-budget” – in the National Assembly and Senate as the government seeks to meet the preconditions for releasing the $1.1 billion loan from the International Monetary Fund (IMF).
Running against time to pacify the IMF for the revival of the rescue program, the government had last night approved the increase in the GST rate of the general sales tax from 17% to 18% and the increase of the federal excise tax (FED) on cigarettes in order to obtain an additional 115 billion rupees out of the 170 billion rupees accepted by Pakistan in accordance with IMF conditions.
Through the “mini-budget”, the Pakistani Democratic Movement (PDM)-led government aims to reduce the budget deficit and expand its tax collection net – in order to meet the conditions set out by the Washington-based lender. The National Assembly will not refer the bill for further deliberations to the Standing Committee on Finance and Revenue, even though the Senate has referred the bill to the appropriate committee.
Increase in GST on luxury items from 17% to 25%
- The FED on business class and first class airline tickets will be increased to Rs 20,000 or 50% – whichever is higher.
- Withholding tax of 10% of the adjustable anticipated income tax to be taxed on marriage functions
- Increase in the Fed on cigarettes, soft drinks and sugary drinks – from Rs1.5 per kg to Rs2 per kg
- Increase in GST from 17% standard to 18%
- GST will not be imposed on essential goods – wheat, rice, milk, pulses, vegetables, fruits, fish, eggs, meat
- BISP allocation to be increased; Government allocates Rs 400 billion to the programme
Speaking to reporters after the session, Finmin Dar said he expects the bill to pass both houses by Monday or Tuesday, as Senate President Sadiq Sanjrani “gave us until Friday.”
Pakistan and the IMF failed to reach an agreement last week and a visiting IMF delegation left Islamabad after 10 days of talks, but said negotiations would continue. The $350 billion economy is in dire need of funds as it battles a heartbreaking economic crisis. In an effort to appease the IMF, the government sought to roll out the tax measure through an order, but the president, Dr. Arif Alvi, advised the administration to seek parliamentary approval instead.
An agreement on the ninth review of the programme would free up more than $1.1 billion of the total of $2.5 billion pending under the current package agreed in 2019 that ends on June 30. The funds are crucial for the economy, whose current foreign exchange reserves barely cover 18 days of imports.
Protecting common people
In his speech to the lower house of parliament, FinMin Dar said that “the nation is facing unprecedented crises” due to the “substandard” policies of Pakistan’s Tehreek-e-Insaf (PTI) government. The country, under the previous Pakistan Muslim League-Nawaz (PML-N) government, had experienced economic development and gross domestic product (GDP) had increased by $112 billion.
“The PML-N is still trying to take out fewer loans. Foreign investment had also increased during the mandate of the PML-N. In contrast, under the PTI government, loans have reached record levels and the income of an ordinary man has also fallen.” The finance czar went on to say that in addition to overcoming the “challenges the current government faces due to PTI policies,” last year’s floods also resulted in losses worth more than $8 billion.
“But, we should always prefer the state to politics,” he reiterated – the mantra that PDM leaders have repeatedly propagated as they face an arduous task on the economic front. The finance minister insisted on reforms in the electricity sector, considering them essential for the country’s economy. “The international financial institutions have called for reforms in the sector,” he said.
Senator Dar said that the PDM-led administration has kept the promises made to the IMF by the PTI-led government. “We are paying a heavy political price for all this. We believe that the state, not politics, is important.
The minister said that efforts are being made to impose taxes so that ordinary people do not have to face difficulties.
Dar informed parliament that the government had allowed the import of five-year-old tractors and had set a target of installing 75,000 solar tube wells. The senator said Prime Minister Shehbaz Sharif will soon put the nation in confidence regarding the mini-budget. He also briefed parliamentarians on the Prime Minister and Cabinet to propose a plan to reduce his spending.
“At first, economic growth will be slow, but will increase by 4% later,” the minister said. Dar added that the notification to open letters of credit (LC) of medicines, oil and sports has been issued. The current and previous revenue target of 170 billion rupees will be met, the minister said.
Speaking about provisions for farmers and the agricultural sector, the politician said the government has already announced a Rs 2 trillion package for farmers, while Rs 1 trillion has been distributed so far. “Farmers will receive cheap loans for agricultural tools and 30 billion rupees will be granted for fertilizers,” Dar said. He also said the government had earmarked Rs 30 billion for youth loans.