Wednesday April 17, 2024

Mini-budget: Govt plans additional revenue of Rs50bn

The IMF expressed concerns over the ban on import of luxury items and asked the government to lift it

By Mehtab Haider
August 19, 2022
Minister for Finance Miftah Ismail addresses a press conference in Islamabad, on August 18, 2022. —Radio Pakistan
Minister for Finance Miftah Ismail addresses a press conference in Islamabad, on August 18, 2022. —Radio Pakistan

ISLAMABAD: The government has decided to present a mini-budget and lift ban on import of luxury and non-essential items in compliance with IMF conditions.

The decision to scrap the import ban three months after its imposition came as the country’s economy expects a breather after positive cues from the IMF. Addressing a news conference at the state TV headquarters here on Thursday, Minister for Finance Miftah Ismail said the government had decided to undo the ban on import of 33 luxury items and impose 400-600 percent Regulatory Duty, raise 10 percent tax on cigarettes and slap Rs380 per kg tax on tobacco processing.

Through a presidential ordinance, which will be promulgated in the coming days, the government will fetch additional revenues of Rs50 billion. “We have decided to impose 400 to 600 percent Regulatory Duty, Additional Customs Duty and Sales Tax on import of luxury items, which will fetch revenues in the range of Rs5 to Rs14 billion. The enhanced tax rate on cigarettes and tobacco processing will add Rs36 billion in totality. The government will bring additional Rs50 billion into the national kitty,” he said.

Flanked by close confidants Bilal Kiyani and Rana Ehsan, Miftah said the IMF had scheduled its board meeting for August 29 after getting confirmation from bilateral friends such as Saudi Arabia, the UAE, and Qatar for bridging the financing gap of $4 billion.

He said the UAE had already announced its package of $1 billion but it would be better that Saudi Arabia and Qatar announced their respective financial packages by themselves. The minister said the government had decided to lift the ban on the import of luxury items in order to comply with the IMF and WTO conditions.

The IMF had expressed concerns over the ban on import of luxury items and asked the government to lift it. “Instead, now the government will slap three to six times rate of Regulatory Duty (RDs) on all luxury items after lifting ban such as on CBU of vehicles, home appliances, iPhones, Mercedes, imported meat, fish, Simon fish, imported shoes, purses and many other items,” he said, adding that if somebody wanted to buy an imported luxury vehicle of Rs50 million in the price range of Rs300 million, then they will have to pay extra duty and taxes.

Miftah said the government had decided to withdraw fixed tax on retailers imposed through the electricity bills which envisaged to bring Rs42 billion into the national kitty. “It was a mistake on our part that the government imposed fixed tax on small shopkeepers using just 50 units of electricity,” he added.

The FBR, he said, had collected Rs6 billion from traders last fiscal year. The same rate of tax, including 5 percent Sales Tax and 7.5 percent Income Tax, would continue to be collected. From October 1, 2022, the government will jack up sales tax rate to 7.5 percent, 10 percent and 12.5 percent, while the income tax rate for retailers would be jacked up from 7.5 percent to 20 percent for different usage of higher electricity slabs so the government was going to collect Rs27 billion through the revised tax rates.

On cigarettes, the government has decided to increase Federal Excise Duty (FED) rate from Rs1,850 per 1,000 cigarettes to Rs2,050 for tier-2 and from Rs5,900 per 1,000 cigarettes to Rs6,500 for tier-1 cigarettes. The government has so far increased taxation rate of 25 percent on cigarettes in the last two months.

On tobacco processing at Green Leaf Threshing Processing (GLTP), the tax rate has been proposed to be increased from Rs10 per kg to Rs380 per kg. This advance tax was increased from Rs10 per kg to Rs300 per kg during the tenure of PTI-led regime but then it was reversed after pressure from the then federal and provincial ministers on the FBR through the office of former speaker National Assembly.

Interestingly, the incumbent regime has not taken any taxation measures on sugar-based beverages industry since coming into power in April this year. The minister said the government had decided that it would not pay tax on subsidy amount for the electricity sector and the same method would now be applied for the subsidy provision in case of gas sector.

He said the government had abolished Rs5 per unit unfunded subsidy on electricity provided by the PTI-led regime but now the government had placed funded subsidy for the power sector for the current fiscal year with the principled decision that the primary balance of Rs153 billion agreed with the IMF would not be breached at any cost.

The minister said the IMF had called for increasing the foreign exchange reserves from $10 billion to $16.5 billion. South Korea, he said, had committed $100 million as matching loan in one of ASB’s loan, while another $1 billion facility was also under discussion.

Answering a query, he said the government was expecting revenue impact of Rs5-14 billion with imposition of heavy RDs and other taxes for curtailing imports. He said the provinces could be offered to share 50:50 percent income collected through the agriculture income tax. He said the government had decided to import 1.6 million tonne wheat from Russia keeping in view shortages. He said one million tonne wheat had been imported so far, while negotiations were on for the import of the remaining six million tonnes. The minister said if someone was committing any wrongdoing, then the government will not make any changes to the taxation for the pharma industry in the upcoming ordinance.