Desperate to unlock financial assistance from the International Monetary Fund (IMF), the government of Pakistan has tabled a “mini budget” in the Parliament. Additional taxes worth Rs.170 billion have been levied and while it is not clear whether it would please the international lender, what is clear is that it would unleash another wave, Tsunami of inflation in Pakistan.
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Let’s look at the highlights of this “mini budget”:
- General Sales Tax (GST) increased from 17% to 18%
- General Sales Tax (GST) on “luxury items” has been increased from 17% to 25%
- General Sales Tax (GST) increase is not applicable on wheat, rice, milk, meat, and pulses
- Federal Excise Duty (FED) on cigarettes increased by 153%
- Federal Excise Duty (FED) on first class and business class tickets fixed at 20% or Rs.50,000, whichever is higher
- Federal Excise Duty (FED) on cement raised by Rs.0.50 per kg
- Allocation of funds for Benazir Income Support Program (BISP) increased by Rs.40 billion
- Adjustable Withholding Tax (AWT) on marriage halls fixed at 10%
- Additional tax on mobile phones
What Does It Mean For The Common Man and Woman?
It doesn’t take a degree in economics or finance to realize that certain commodities will now cost more. For example, getting married now, especially in urban areas, will be more expensive. Construction industry, both commercial and residential, will get hit as cement becomes more expensive. This means that if a bag of cement weighs 50Kg, it will now cost Rs.25 more.
While the government has claimed that the new GST rates will not apply on daily items like wheat, pulses and meat, etc., these items are already getting out of the reach of many due to regularly increasing prices of petroleum products in Pakistan.
Domestic and international travel will become more expensive. Dining out will become more expensive as the GST has been increased by 1%.
What is commendable about this mini budget is that it has exponentially increased the prices of cigarettes and sugary items in the country. For example, if a 1.5L bottle of cold drink previously cost Rs.115, it will now cost Rs.126.50 (after 10% additional tax).
However, what is not clear is how the IMF would view an increase in the budget of BISP. The Fund in general is anti-subsidy and BISP is one of the biggest subsidized programs in Pakistan.
Though the finance minister has not listed them in his speech, these luxury items were banned from import in May 2022 when the government tried to narrow Current Account Deficit (CAD):
- Mobile phones
- Home appliances
- Fruits and dry fruits (except Afghanistan)
- Weapons and ammunition
- Chandeliers and lighting (except energy savers)
- Headphones and loudspeakers
- Sauces and ketchups
- Doors and window frames
- Traveling bags and suitcases
- Sanitary ware
- Fish and frozen fish
- Carpets (except Afghanistan)
- Preserved fruits
- Tissue paper
- Luxury mattresses and sleeping bags
- Jams and jelly
- Bathroom ware
- Aerated water
- Frozen meat
- Ice cream
- Shaving goods
- Luxury leather apparel
- Musical instruments
- Saloon items like hairdryers and chocolates
The government may choose to add or subtract from this list. But by and large, expect 8% additional GST on these products.
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