KARACHI: Pakistani finance minister Shaukat Tarin on Thursday presented a much-awaited supplementary finance bill, popularly known as the mini-budget, ending tax exemptions on nearly 150 items as a prior action for the revival of a $6 billion loan program from the International Monetary Fund (IMF).
The executive board of the Fund will meet on January 12, 2022, to decide if it will revive the stalled loan package, approved in 2019 to rein in mounting debts and stave off a looming balance of payments crisis, in exchange for tough austerity measures.
The new finance bill will empower the government to level a uniform 17 percent General Sales Tax (GST) on goods that were taxed at 5% or 12% rates. The amendment will also enable the government to generate over Rs343 billion in additional revenue.
“IMF wants [Pakistan] to tax all the items which are exempted,” Tarin said at a press conference after the budget session in the national assembly, which was disputed by opposition chanting and sloganeering.
The measures Pakistan has agreed to meet for the IMF would have a monetary impact of around Rs600 billion, including around Rs350 billion through tax exemption withdrawals and new tax imposition, Rs200 billion through cuts in development funds, and Rs50 billion though other adjustments.
Apart from the tax exemption withdrawals, the supplementary bill also proposes the imposition of new taxes on sectors which were earlier zero-rated.
Tarin ruled out widespread inflationary pressures due to the new measures, saying: “Only Rs2 billion worth of new tax were being levied that would not cause inflation.”
The finance bill proposes income tax rate to be enhanced on mobile phone calls from 10% to 15%, replacing zero-rating on supplies of raw materials for imported milk with a 17% tax, and a 17% tax on bread prepared in bakeries, restaurants, food chains and shops, apart from the other measures.
The bill also proposes to increase sales tax on cars with engine capacity of more than 1,000cc to 17%. The measures now propose to increase tax on imported electric vehicles from 5% to 17%.
The finance minister said a Rs70 tax exemption had been withdrawn, mainly on luxury items.
“The impression that the common man would be burdened with new measures is baseless,” Tarin said.
The other condition of the IMF was to grant complete autonomy to the central bank through amendments in the State Bank of Pakistan (SBP) Amendment Bill 2021. The government also tabled the revised bill approved by the federal cabinet on Wednesday.
But Tarin warned: “If we see that the State Bank is slipping out of our hands [after the autonomy] we can end the autonomy with a simple majority.”
Tarin’s comment came after opposition politician accused the government of “selling” the country to the IMF.
"You're giving the control of State Bank to the IMF,” opposition politician Khawaja Asif said. “Don’t surrender Pakistan’s financial sovereignty.”
Economists say the bill will bring inflationary pressure and impede economic growth.
“The impact of the Finance Supplementary Bill 2021 will be highly inflationary and anti-growth,” senior economist Dr Ikram ul Haq told Arab News. “The government, instead of withdrawing exemption given to the rich, has decided to withdraw exemption of billions of items of daily use, causing further hardships for the weaker sections of society, especially fixed income groups.”
He added: ”High tax rates are detrimental for businesses.”
