A National Assembly session is under way to pass a crucial tax amendment bill to fulfil the conditions of the International Monetary Fund (IMF) to revive a stalled loan programme that the country needs to stave off default.
Finance Minister Ishaq Dar introduced the Finance (Supplementary) Bill 2023.
Addressing the lower house of parliament, Dar compared the performance of the previous PML-N and PTI governments. He said that during former prime minister Nawaz Sharif’s tenure, the GDP per capita increased while the Pakistan Stock Exchange’s (PSX) market capitalisation was $100 billion.
However, the PSX’s market capitalisation declined to $26bn during the PTI government, he said, adding that the decrease showed a lack of investor confidence in the previous government.
Dar also criticised the PTI government for increasing the country’s debts significantly.
“In 2017-18, GDP growth had surpassed six per cent, inflation was at 5pc, food inflation at 2pc … After the 2018 elections, a selected government came into power. Because of its failures, Pakistan’s economy shrunk.”
The minister then moved on to the relevant amendments that he was proposing:
Increase in federal excise duty on cigarettes and fizzy drinks
Increase in federal excise duty on cement from Rs1.5/ kg to Rs2/ kg
GST increase from 17pc to 18pc
Benazir Income Support Programme (BISP) handouts increased to Rs400bn from Rs360bn
Meanwhile, a session of the upper house of parliament has also begun.
A Senate session has also started.
President ‘refuses’ ordnance
The government was forced to head to parliament after President Arif Alvi “advised” the finance minister to take parliament into confidence over the Rs170 billion in new taxes that are being levied.
Soon after the president’s ‘refusal’, a cabinet meeting was convened to approve the tax amendment bill which would be tabled in both houses of parliament today, as per a statement issued by the PM Office after the meeting.
Following the cabinet meeting, in a later-night development, the Federal Board of Revenue (FBR) issued SRO178 to enhance a federal excise duty on locally manufactured cigarettes which would generate up to Rs60bn in taxes on tobacco products and the Finance Division issued a notification increasing the general sales tax by one per cent to 18pc. These measures would raise Rs115bn.
Since the government had agreed to a target of Rs170bn in new taxes with the IMF, the remaining amount of Rs55bn would be collected through an increase in excise duty on airline tickets, and sugary drinks and an increase in withholding tax rates after the Finance (Supplementary) Bill 2023 is approved by parliament today.
Breakdown of taxes
The government agreed with the IMF to raise Rs170bn through taxes. Of this,
Rs60bn will be generated by increasing federal excise duty on locally manufactured cigarettes
Rs55bn by increasing the general sales tax to 18pc
Rs55bn by increasing excise duty on airline tickets, and sugary drinks and raising withholding tax rates (following the bill’s approval by parliament)
Pakistan held 10 days of intensive talks with an IMF delegation in Islamabad — from Jan 31 to Feb 9 — but could not reach a deal.
The IMF, however, said in an earlier statement that both sides have agreed to stay engaged and “virtual discussions will continue in the coming days to finalise the implementation details” of the policies, including the tax measures, discussed in Islamabad.
The government is in a race against time to implement the tax measures and reach an agreement with the IMF as the country’s reserves have depleted to a critically low level of $2.9bn, which experts believe is enough for only 16 or 17 days of imports.
The agreement with the IMF on the completion of the ninth review of a $7bn loan programme would not only lead to a disbursement of $1.2bn but also unlock inflows from friendly countries.