Govt increases sales tax by 1% to 18%

February 15, 2023 (MLN): In a bid to unlock the IMF stalled tranche at the earliest, the government on Wednesday increased the General Sales Tax (GST) by 1% to 18% mainly on luxury items and 150% surge in the rates of the Federal Excise Duty (FED) on cigarettes to collect Rs115 billion out of the planned Rs170bn taxes.

However, no tax is levied or increased on products consumed on daily basis by the lower class of the economy. 

According to the news reports, the government had presented a draft bill to the federal cabinet, which is set to be presented in parliament for approval. The finance minister noted that the federal cabinet has the authority to raise the GST rate, and the FBR can also increase the FED rate on cigarettes independently.

To provide permanent legal cover to the recently announced tax measures worth Rs115bn, a separate session of the National Assembly and the Senate was convened today. At least Rs55bn of the planned amount will be collected through a 1% increase in the GST over just four and a half months.

The remainder of the amount, up to Rs60bn, will be collected by increasing the FED on cigarettes.

Additionally, rates for items listed in the third schedule of the Sales Tax Act will also see a further increase. However, this increase will require an act of parliament to be enforced.

According to Finance Minister Ishaq Dar, the decision to use administrative authority was made after President Dr. Arif Alvi declined to promulgate a presidential ordinance.

The president advised that a session of parliament be called immediately to approve the taxes, though this process may take eight to ten days.

A press statement released by the Presidency noted that the finance minister had updated President Dr. Arif Alvi on the progress in talks with the IMF and that all modalities had been agreed upon.

The statement added that the President advised the government to take the parliament into confidence on this important matter and to hold a session immediately for the bill's enactment without delay.

Today in Parliament, the proposed Tax Amendment Bill 2023 will include an increase in the FED on beverages, sugary drinks, and juices, from 13 to 20%.

The Finance and Revenue Minister, Senator Ishaq Dar, expressed hope that the staff-level agreement with the IMF would be signed this week.

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