The government launches a midnight onslaught by increasing the GST to 18%.
As a result of President Alvi’s decision not to adopt an ordinance, the FED on cigarettes has increased by 153%.
ISLAMABAD: To raise Rs115 billion out of the anticipated Rs170 billion mini-budget, the government on Tuesday increased the general sales tax (GST) rate to 18% and sharply hiked levies on cigarettes with immediate effect.
After President Arif Alvi failed to publish an ordinance sent by the government, the federal cabinet moved to enforce a further condition imposed by the International Monetary Fund (IMF) for the restoration of the $6.5 billion initiative that had been halted.
However, the global lender will only approve measures that are permanent in nature, which the government will ensure by obtaining parliamentary approval.
According to Finance Minister Ishaq Dar, after the cabinet meeting, the federal cabinet used its administrative authority to increase the GST rate by 1% to 18% and increase the federal excise duty (FED) rates on cigarettes to implement additional taxes of Rs115 billion as of midnight.
For the first time ever, the government significantly raised cigarette taxes, which had a significant negative impact on the tobacco industry.
The Federal Board of Revenue (FBR) informed the FED of a 153% price rise on premium brands of cigarettes, from Rs6.5 per pack to Rs16.5 per pack. For less costly brands, the increase in price per stick is 98% higher, from Rs2.55 to Rs5.05.
The proposed legislation, which the government had previously given to the federal cabinet, will now be considered by parliament on Wednesday (today).
The federal cabinet has the power to raise the GST rate, and the FBR has the right to independently raise the FED rate on cigarettes, according to the finance minister.
The administration has called separate sessions of the National Assembly and the Senate on Wednesday to give the instantly notified Rs115 billion in tax measures long-term legal protection (today).
In just four and a half months, a 1% increase in the GST will bring in at least Rs55 billion out of the total amount of Rs115 billion. The FED on cigarettes would be raised in order to collect a maximum of Rs60 billion.
The rates for the items listed in the third schedule of the Sales Tax Act will also rise, although this hike will only take effect if a parliamentary act is passed.
After President Dr. Arif Alvi refused to issue the presidential edict, the decision was made to employ the administrative authorities, according to Dar. He continued by saying that the president had suggested calling a session of the parliament to approve these levies, but that this would take eight to ten days.
A press release from the Presidency states that Finance Minister Ishaq Dar contacted President Dr. Arif Alvi to inform him of the developments in the negotiations with the IMF and to inform him that all procedures had been agreed upon.
The statement continued, “The President indicated that it would be more appropriate to take the Parliament into confidence on this vital matter and that a session be summoned soon so that the measure is enacted without delay.
The President believed that the Parliament should introduce laws rather than imposing taxes in his name, according to Dar.
The government has decided to implement the hike in the GST rate and the FED rates on cigarettes starting at midnight in order to deter companies from storing or clearing items by them at the previous cheap rates, Dar continued.
The rise in the GST rate will have a significant inflationary impact and will disproportionately affect the poor. But the IMF’s refusal to consider actions that could be legally challenged left the government with no other option.
The IMF prevented the government from taxing the general public’s bank deposits and from implementing a flood charge on imports.
To be announced today are new taxes
For foreign flights in club, business, and first class, the government has suggested raising the FED to 20% of the gross fare or Rs 50,000 per ticket, whichever is higher, if the tickets are issued on or after the date of passage of this bill.
Additionally, it has suggested raising the sales tax rate to 25% of ad valorem for imported mobile phones priced between $201 and $500.
Persons on the Active Taxpayers List will be charged a 10% advance adjustable income tax and non-ATL will be charged a 20% advance adjustable income tax on the amount spent on social events and gatherings.
It has suggested applying a 10% advance adjustable income tax to the sale proceeds of shares sold off-market.
Cement now carries a FED of Rs. 2 per kilogramme as opposed to Rs. 1.50 per kg.
By adopting these actions, Rs55 billion extra will be generated, bringing the mini-overall budget’s size to Rs170 billion.
At 3.30 p.m., Dar will now introduce the addendum to Finance Bill 2023 before the National Assembly.
The additional taxes totaling Rs170 billion will be collected in four months, the finance minister told the media on Friday. According to some internal records, these actions might have a net impact of Rs189 billion for the next four months, increasing the yearly impact to close to Rs570 billion.
The FBR announced the rise in cigarette prices on Tuesday. The FBR announced the new FED rate at Rs16,500, an increase of Rs10,000 or 153% over the previous charge of Rs6,500 per 1,000 cigarettes or 1,000 sticks.
For costly brands, the FED rate per cigarette has increased from Rs6.5 to Rs16.50. Additionally, the low end of the pricing range for the pricey brand was raised from Rs 6,600 to above Rs 9,000.
The per-1000 cigarette tax for less expensive brands that cost less than Rs 9,000 has also been announced at Rs 5,050, up from Rs 2,550. The tax rate for this group has increased by 98%. The tax on cigarettes has been raised from Rs2.55 to Rs5.
According to Dar, the cabinet has also agreed raising the FED on sugary beverages from 13% to 20%. However, he continued, this action won’t become effective until the National Assembly has approved the Finance Bill. The first phase of the FED on juices has been planned to be 10%.
Additionally, the administration has raised the GST on airline tickets, which must first be approved by the National Assembly before going into effect.
Dar responded to a query by saying that both parties would first concur on the Memorandum for Economic and Financial Policies before the Staff-Level Agreement with the IMF (MEFP).
The minister further stated that an agreement will be achieved after the government responded to the IMF over the draught of the MEFP.
From January 31 to February 9 the IMF mission was in Pakistan for the ninth review of the $6.5 billion programme. However, due to strong mistrust stemming from violated past pledges made by the PTI and the PDM governments, both sides were unable to come to a staff-level agreement when the IMF insisted on meeting all the requirements upfront.
According to a statement from the Presidency, the president expressed appreciation for the efforts made by the administration to reach an agreement with the IMF and gave his assurance that Pakistan would honour the promises made by the government to the IMF.
According to the statement, the finance minister notified the public that the government planned to enact an ordinance to increase tax income.
The development happened at a time when international credit rating agencies expressed concern that the dangers to the nation’s external sector could expand if the staff-level agreement with the IMF wasn’t finalised sooner.
Pakistan’s Long-Term Foreign Currency Issuer Default Rating was lowered by Fitch Ratings on Tuesday from “CCC-positive” to “CCC-negative.” Fitch has downgraded Pakistan’s rating twice in less than five months, making it nearly impossible to get finance from the global credit rating agencies.
