Finance (Supplementary) Bill, 2023: Dar unveils taxation measures as Pakistan looks to appease IMF

Federal Minister for Finance and Revenue Ishaq Dar introduced on Wednesday the Finance (Supplementary) Bill, 2023, announcing various amendments that feature taxation measures of Rs170 billion (approximately $640 million), as Islamabad moves to convince the International Monetary Fund (IMF) to revive its bailout programme.

The finance minister began his address by criticising the tenure of the Pakistan Tehreek-e-Insaf (PTI) government, arguing that a national committee be formed to investigate the failures that have cost the country’s economy.

Some of the amendments include:

• FED on first class and business class air travel at 20% or Rs50,000 (whichever is higher) will be imposed

• Adjustable withholding tax on marriage halls introduced at 10%

• Increase in FED on cigarette and sugary drinks has been proposed.

• FED on cement will be raised from Rs1.5 per kg to Rs2 per kg

• GST proposed to be raised from 17% to 25% on luxury items while it has been increased to 18% on other items. Daily use items including wheat, rice, milk, pulses, meat have been exempted from the increase

• Increase of Rs40 billion in BISP, taking total allocation to Rs400 billion

Dar said the taxation measures will help reduce the budget deficit, adding that cabinet members would also adopt an austerity approach to help the country at this time of economic distress.

Pakistan has been implementing various prior conditions agreed with the Washington-based lender in hope of reviving the stalled bailout programme at a time when its foreign exchange reserves have depleted to critical levels, covering less than a month of imports.

Background

The National Assembly session comes as talks between the IMF and Pakistan authorities resumed virtually on Monday. The two sides are looking to reach an agreement that will unlock funding critical to keep the cash-strapped country afloat.

The two could not reach a deal last week and a visiting IMF delegation departed Islamabad after 10 days of talks but said negotiations would continue.

On Tuesday, Dar during his meeting with President Dr Arif Alvi apprised the premier that the government wants to raise additional revenue through taxes by promulgating an ordinance.

However, President Alvi advised that it would be more appropriate to take the parliament into confidence on this subject and that a session be called immediately so that the bill is enacted without delay.

Rs170bn additional taxes: Do it thru bill, Alvi asks Dar

On Tuesday, a meeting of the Federal Cabinet approved the Finance Supplementary Bill 2023 to impose additional taxes on luxury items and an increase of one percent in General Sales Tax (GST).

The meeting of the Cabinet chaired by Prime Minister Shehbaz Sharif on Tuesday approved the Finance Supplementary Bill 2023. The Federal Cabinet was given a detailed briefing regarding the reforms to be carried out in the context of the 9th review of the International Monetary Fund’s EFF.

The meeting was informed that as a result of these reforms, additional taxes are being levied on luxury items while general sales tax will be increased by one percent.

Moreover, the government started the implementation of the mini-budget late Tuesday night by doubling the Federal Excise Duty on cigarettes from Feb 14, 2023.

On Monday, the government increased gas prices by up to 124% for domestic consumers from January 1, 2023, to generate a revenue of Rs310 billion from the consumers in the next six months (January-June 2023) to curtail the circular debt in the gas sector.

In a meeting, the ECC was informed that ERR was issued by the Oil and Gas Regulatory Authority (OGRA) for the fiscal year 2022-2023 on 3rd June 2022 for both gas companies.

As per determination, SNGPL required revenue of Rs261 billion and SSGCL Rs285 billion in the fiscal year 2022-2023 but the OGRA did not allow the previous year’s revenue shortfall.

The hike in gas tariffs was among the prior conditions Pakistan needed to implement to move ahead on the IMF programme.