GST increased by 1%, duty on cigarettes hiked on IMF demand

ISLAMABAD: The Shehbaz Sharif government announced on Tuesday, through a notification issued by the Federal Board of Revenue (FBR), new taxation measures worth Rs115 billion in an effort to pacify the International Monetary Fund (IMF) for the revival of the bailout program.

After President Dr. Arif Alvi refused to promulgate an ordinance for the unveiling of a mini-budget, the government acted swiftly and obtained the money bill’s approval from the federal cabinet.

Following this announcement, the cabinet met under PM Shehbaz Sharif’s leadership, and it was decided to impose taxes totaling Rs115-116 billion through an SRO issued by the FBR. The remaining taxation measures, totaling Rs55 billion, would be implemented through a money bill presented to Parliament.

The FBR issued the Statutory Regulatory Order (SRO) for raising the General Sales Tax GST rate from standard 17 percent to 18 percent and increasing the Federal Excise Duty (FED) on cigarettes following the cabinet’s approval of Tax Laws Amendment Bill 2023. This was done in order to collect an additional Rs115 billion out of the Rs170 billion that the government had agreed to in accordance with the terms of the IMF.

However, sources revealed that the government also approved the 25 percent GST on hundreds of high-end luxury goods; however, this tax will be implemented through the Tax Amendment Bill 2023, which will be presented to parliament on Wednesday (today).

To make imports more expensive, the FBR increased the rate of GST on all imported luxury goods that the Ministry of Commerce had previously banned. On some locally produced luxury goods, an increased GST rate has also been proposed.

Due to the lender’s strong opposition, the government has decided not to impose the Flood Levy.

The IMF’s staff-level agreement may be delayed because the government has summoned the National Assembly session today at 3.30 p.m. and the Senate session today at 4.30 p.m. to lay down the Tax Amendment Bill 2023. Despite adopting this route for slapping Rs115 billion in taxes on an immediate basis with effect from February 15, 2023, with the consent of the federal cabinet, Alvi declines to promulgate ordinance

At 9:25 p.m., Finance Minister Ishaq Dar was supposed to give a televised speech about the main points of the mini-budget. However, he changed his mind and had to cancel his press conference at the last minute.

After attending the meeting of the federal cabinet, Dar told reporters outside the Finance Ministry that he had asked the president to issue an ordinance, but he had declined.

He suggested to the government that a bill to impose taxes be introduced.

Dar informed the president that tax issues were at play and that the government could not wait any longer than eight to ten days because certain measures would have a financial impact, but the president declined to consider Dar’s request.

He claimed that the government went the other way and ordered the FBR to issue an SRO for raising the GST rate to 18%, while raising the FED on cigarettes.

The finance minister advised patience until a formal notification in this regard was issued and refused to disclose the exact rate.

The FED on beverages, juices, and sugary drinks would be raised from 13 percent to 20 percent and included in the Tax Amendment Bill 2023 that will be passed by Parliament today.

The minister expected the staff-level agreement to be signed this week.