Hike in GST on more luxury items on the cards

ISLAMABAD: In a bid to satisfy the IMF for signing a staff level agreement, the government on Friday moved a summary for approval of the federal cabinet through a circulation for adding more items to the list for slapping the enhanced rate of GST from 18 to 25pc to fetch additional Rs11 billion.

The government added more items to the list of enhanced GST rates of 25pc including aircraft and boats/ships for pleasure, recreation, and private use, jewelry, and wristwatches. The items have now been added to the list on which the enhanced rate of GST will be charged.

The locally manufactured motor vehicles that are proposed to be treated as luxury goods, only vehicles in the category of SUVs/CUVs, other vehicles of engine capacity 1400cc and above and double cabins 4x4 are proposed to be taxed at higher rate of 25pc.

However, categories of vehicles that are at a reduced rate e.g. locally manufactured EVs (Electric Vehicles) up to battery capacity of 50 Kwh, electric three-wheelers, e-bikes and Hybrid Electric Vehicles (HEVs) of up to 2500cc have been excluded from the list and will continue to be charged at the reduced rate as provided under Eighth Schedule to the Sales Tax Act, 1990.

Furthermore, all commercial vehicles, namely single cabins and passenger transport vehicles, are also excluded from the list and would remain chargeable to the sales tax at existing rates.

It is proposed that the federal government may enhance the sales tax rate on luxury goods (currently liable to standard rate of sales tax) from 18% to 25% in the exercise of its powers under clause (b) of sub-section (2) read with first proviso to clause (a) of sub-section (2) of section 3 of the Sales Tax Act, 1990. The revenue impact of this taxation measure is estimated at Rs. 7 billion on imported luxury goods and Rs. 4 billion on locally manufactured luxury vehicles.

The imported items selected for the enhanced sales tax rate of 25% are the same goods that have been determined by the Cabinet as ‘luxury goods’ and were banned from import in May, 2022 through SRO No. 598(I)/2022 on May 19, 2022. These items included import of aerated water and juices, Auto Completely Built Units (CBU), sanitary and bath room wares, carpets (excluding Afghanistan), chandeliers and lighting devices or equipment, chocolates, cigarettes, confectionary items, cornflakes etc, cosmetics and shaving items, tissue papers, crockery, decoration/ornamental devices, dog and cat food, doors and window frames, fish, footwear, fruits and dry fruits, furniture, homes appliances (CBU), ice cream, jams, jellies and preserved fruits, luxury leather jackets and apparels, mattress and sleeping bags, frozen or processed meat, mobile phone (CBU), musical instruments, pasta etc, arms and ammunition, shampoos, sunglasses, tomato ketchup and sauces, traveling bags and suitcases.

In view of the urgency, it is also proposed that the Prime Minister may condone the requirement of submission of the summary to the Cabinet Committee for Disposal of Legislative Cases (CCLC) and allow submission of the summary to the federal cabinet through circulation.