• A ‘mini-budget’ unveiled ahead of IMF board meeting
• Henceforth, luxury goods to be heavily taxed
• Govt imposes further tax of Rs36bn on tobaco industry, 5pc sales tax & 7.5pc income tax on small retailers
ISLAMABAD: Finance Minister Miftah Ismail Thursday announced lifting of ban on the import of luxury items to comply with the International Monetary Fund (IMF) condition ahead of its Executive Board meeting scheduled for 29th August 2022 to ensure approval of the seventh and eighth review of the Extended Fund Facility (EFF).
In what appeared to be unveiling a mini-budget at a press conference, Miftah said that the ban on the import is being lifted, Rs36 billion additional taxes are being imposed on tobacco and five percent sales tax and 7.5 percent income tax on small retailers rather than a fixed tax on electricity bill would be charged for a period of three months and would be gradually increased up to 20 percent after October 1, 2022.
The Finance Ministry and the Federal Board of Revenue (FBR) have suggested to the prime minister Rs18 billion in additional tax on tobacco. However, the prime minister has directed the Finance Ministry to double the taxes on tobacco, taking the total of additional taxation to Rs36 billion.
The finance minister said that all the prior actions of the IMF have been met including electricity and committed not providing any unfunded subsidy to achieve Rs153 billion primary deficit target.
He said that the ban on imports is being lifted as desired by the IMF and the WTO. However, he added that duties – Regulatory and Custom and sales tax – is being increased by three times on import of the CBU items – vehicles, mobile phone, electronics, imported meat and fish, shoe, purses, and packed food items etc to make the import difficult.
He admitted the smuggling of imported items through green channels, stating that the reality is that despite the fact that there was a ban on the import for over three months, one can easily get imported fish and meat in restaurants of Islamabad Karachi, and Lahore.
The government has also complied with the electricity tariff and committed that a budgeted subsidy would be provided on electricity and Rs153 billion primary deficit target would be met. No non-funded subsidy, would be provided, he added
The finance minister said that as mistakenly fixed retail tax was imposed even on those traders whose electricity bill was just Rs1,000-2,000, therefore, the government has to withdraw it. He said that now the target has been revised to Rs27 billion as a fixed tax on retail would be withdrawn but variable five percent sales tax and 7.5 percent income tax would be charged from every shopkeeper for the next three months, up to October 1, 2022. Afterwards, on the consumption of more than 50 units, both sales and income tax would be increased gradually to 20 percent in accordance with the consumption of electricity units, he added.
He said that gap in shortfall would be bridged by imposing Rs36 billion additional taxes on tobacco and announced that the government would increase the FED to Rs2,250 on tier-II 1,000 cigarettes from Rs1,850 and Rs6,500 on tier-I 1,000 cigarettes from Rs5,900. And cess on tobacco per kg would be increased to Rs380 from Rs10, he added.
He said that four companies have purchased track and trace system have installed which would make the monitoring effective.
He said that there would be no sales tax on the subsidy on electricity. Through the ordinance, the sales tax on peter engine (diesel one engine) is being removed, he said adding that the government would also consider removal of tax on import of agriculture implements.
He said that the tax on electricity subsidy was already removed and the tax on subsidy of gas would also be removed now.
Replying to questions, the finance minister maintained that the country has fulfilled all the prior actions and the funding gap identified by the Fund has been met with the help of friendly countries, the KSA, the UAE, and Qatar; and China has also rerolled $2 billion. The IMF wanted the reserves $16 billion, he added, and the UAE has announced to invest $1 billion, whereas, the remaining $3 billion is expected from other countries.
Ismail said that although Saudi Arabia has not yet announced my understanding is that as the IMF has scheduled its Board meeting, which means that Fund may have gotten assurance from other countries in this regard that $ 4 billion funding gap was fulfilled.
He said that exports are higher by seven percent compared to the last year and imports are lower and so is the trade deficit, and inflows, as opposed to the outflow in the banking sector, were 600-700 billion higher which lessens the pressure on the rupee. He said that $100 million would be provided from the ADB in the matching.
The finance minister said that a Saudi group has purchased a small company for mobile towers and is interested to invest in mobile towers and a South African company is also interested.
We will strive to live within our own resources in terms of budget and current account, he added. There would be no restriction on machinery import for export, he added. He said that the government has offered the rate of $390 for wheat import to Russia and hopefully now they would consider it.