Ishaq Dar, the minister of finance, formally introduced the Finance (Supplementary) Bill, 2023, to both houses of parliament. The coalition government’s argument that it would place costs on the sectors that could bear them the most was undermined by the bill, which included some extremely inflationary measures but exempted commercial banks and traders from any new taxes. In order to fulfill the last preceding acts negotiated with the International Monetary Fund (IMF) to achieve early disbursement of an estimated $1.2 billion installment, the mini-budget will raise an additional Rs.170 billion over the course of the following four and a half months.
Pakistan is going through an economic crisis that has caused inflation to soar and the currency reserves to drop to dangerously low levels. The country urgently needs the IMF to conclude the ninth assessment of the loan program it began in 2019, in order to open the door for the release of a $1.2 billion tranche and the opening of inflows from other bilateral and multilateral sources.
Nevertheless, a deal with the IMF has been on hold since October 2022, because the parties were unable to reach an agreement during negotiations that were primarily focused on a plan for economic reforms that would liberalize exchange rates and the energy sector. A delegation from the IMF held meetings with Pakistani authorities in Islamabad for ten days in February but left without reaching an agreement, stating that virtual negotiations would go on.
Read more: Why Pakistan needs to think twice before accepting IMF conditions
Once the delegation left, Dar declared that the government had agreed to all of the IMF’s demands and would start implementing reforms right away, including raising gas prices and enacting new taxes worth Rs.170 billion. Dar initially intended to enact these taxes via a presidential ordinance, but President Alvi demanded that he consult with the parliament first.
“The minister informed that the government wanted to raise additional revenue through taxes by promulgating an ordinance. The president advised that it would be more appropriate to take the parliament into confidence on this important subject and that a session be called immediately so that the bill is enacted without delay,” a statement released after President Alvi’s meeting with Finance Minister Dar said.
According to the mini-budget, the Goods and Services Tax (GST) will be increased from 17% to 18%, while the taxes on luxury goods will be increased to 25%. Perfumes will also be subject to the now increased 18% sales tax, and as would be electronic goods such as juicers, blenders, and other electronic gear, as well as laptops, LED TVs, LCD TVs, smartphones, and iPads. The federal excise tax on cement would be raised from PKR 1.5 per kg to PKR 2 per kg. Moreover, the federal excise tax on business and first-class air tickets will also be increased, while the advance income tax assessed on wedding facility invoices will be raised to 10%.
Read more: Tax the rich, support the poor, IMF chief asks Pakistan