Monday February 26, 2024

Mini budget next week: Many items to become pricier

The government had agreed with the IMF for abolishing GST exemptions of Rs350 billion

December 11, 2021
Mini budget next week: Many items to become pricier

ISLAMABAD: The government is set to present a mini-budget before Parliament for withdrawal of General Sales Tax (GST) exemptions and slapping standard rate of 17 percent on import of mobile phones, computers, silver/ gold, different articles of jewelry, re-meltable scrap, LPG and many other products.

It is not yet known whether the government would impose a standard GST rate of 17 percent on POL products or not because if the whole GST rate and petroleum levy were jacked up to Rs30 per liter in phases, then the storm of inflationary pressures might touch new heights. It seems that the government would make last-ditch efforts to protect the POL products from the maximum rate of GST. Currently, the government was charging a minimum amount of GST on POL products. The government has finalised a draft of Tax Laws (Fourth) Amendment Bill 2021 for abolishing almost around 100 tax exemptions as a standard rate of 17 percent GST would become applicable with approval of Parliament.

The government had agreed with the IMF for abolishing GST exemptions of Rs350 billion but its net impact for the current fiscal year will be on the lower side because the first six months had already been passed.

The sales tax on the latest mobile phone sets is under consideration to be imposed. The government has assured the IMF that they would advance the reforms to the GST system, underpinned by a unified tax base and within the confines of the Constitution.

The government has decided to eliminate all zero-rated goods (Fifth Schedule), except on export and capital machinery goods and move them to the standard sales tax rate; remove reduced rates under the Eight Schedule and bring all those goods to the standard sales tax rate; eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e. basic food, medicines, live animals for human consumption, education and health-related goods) and bring all others to the standard rate; and remove the Ninth Schedule to replace a specific tax rate for cellphones with the standard rate.

These reforms are expected to yield an estimated 0.7 percent of GDP on annual basis. The Tax Laws (Fourth) Amendment Bill 2021 proposed retaining of a few exemptions under the Sixth Schedule (Exemption) of the Sales Tax Act 1990 such as import and supply of construction materials, machinery, equipment, and materials to the Gwadar Export Processing Zone’s investors and Export Processing Zone, Gwadar, or other Export Processing Zones. The tax exemptions available to the Chinese companies under the CPEC are also proposed to be retained under the draft bill.

Under the Eighth Schedule (Conditional Sales Tax exemption) of the Sales Tax Act 1990, the sales tax is proposed to be imposed on the LPG; import of re-meltable scrap; silver, in unworked condition; gold, in unworked condition and articles of jewelry, or parts thereof, of precious metal or of metal clad with precious metal; incinerators of disposal of waste management, motorized sweepers and snowplough; plant and machinery not manufactured locally and having no compatible local substitutes; ingredients of poultry feed, cattle feed; re-importation of foreign origin goods which were temporarily exported out of Pakistan; plant, machinery, and equipment used in the production of bio-diesel; secondhand and worn clothing or footwear; agricultural tractors; tillage and seedbed preparation equipment and post-harvest handling and processing and miscellaneous machinery and some other items specified in the Eighth Schedule of the Sales Tax Act 1990.

The GST is proposed on the import of plant, machinery, and production line equipment used for the manufacturing of mobile phones by the local manufacturers of mobile phones; laptop computers, notebooks whether or not incorporating multimedia kit and personal computers; sunflower and canola hybrid seeds meant for sowing and combined harvesters up to five years old.

Sales tax could be imposed on the import of live animals and live poultry; meat of bovine animals, sheep, and goat; fish and crustaceans; eggs including eggs for hatching; live plants including bulbs, roots, and the like; edible vegetables including roots and tubers; pulses; edible fruits; red chilies excluding those sold in retail packing bearing brand names and trademarks; ginger excluding those sold in retail packing bearing brand names and trademarks; turmeric excluding those sold in retail packing bearing brand names and trademarks; cereals and products of the milling industry; seeds, fruit, and spores of a kind used for sowing; Cinchona bark and sugar cane.

The sales tax zero-rating may be abolished on the goods and the raw materials, packing materials, sub-components, components, sub-assemblies, and assemblies imported or purchased locally for the manufacture of preparations suitable for infants, put up for retail sale.

News Desk adds: Talking to a foreign media outlet, PM’s Adviser on Finance Shaukat Tarin Friday said that the government was bringing mini budget next week under an agreement with the International Monetary Fund (IMF), adding that there would not be any hike in prices as tax examptions are not being withdrawn on daily use commodities.

He said that oil prices have come down in the international market; however, petroleum products prices have not been reduced in the country. He claimed that the people will get relief in this regard in coming weeks.

Weekly inflation, meanwhile, eased for three straight weeks, but has remained in double digits for most of the period of current fiscal year, squeezing the middle and low income groups.

Weekly Sensitive Price Indicator (SPI) for the week ended on December 9, recorded at 18.58 percent over corresponding week a year ago, data from Pakistan Bureau of Statistics (PBS) showed on Friday.

On week-on-week basis SPI eased 0.07 percent. Last week, SPI was recorded at 18.35 percent. Prices of tomatoes, chicken, potatoes, LPG prices also reduced. However, prices of all pulses and vegetable ghee and cooking oil increased.

For the week, average prices of 19 items (37.25pc) registered an increase, nine items (17.65pc) registered a decrease, while prices of 23 items (45.1pc) remained stable.