Sales tax on luxury items hiked to 25% in Pakistan

Islamabad: The Pakistan government has hiked sales tax from 17 per cent to 25 per cent on select luxury goods, media reports said on Thursday, as the cash-strapped country was taking steps to unlock the USD 1.1 billion tranche of funding from the IMF.

The International Monetary Fund (IMF) is refusing to release the USD 1.1 billion tranche under the USD 7 billion loan facility unless crucial decisions are made by the government and implemented.

The Federal Board of Revenue (FBR) on Wednesday issued a Statutory Regulatory Order (SRO) for a 25 per cent imposition of General Sales Tax, The News International newspaper reported.

The sales tax hike includes 33 categories of goods covering 860 tariff lines, high-end mobile phones, imported food, decoration items, and other luxury goods, the Dawn newspaper reported.

GST has also been imposed on three categories of locally manufactured goods.

Twenty-five per cent GST has also been imposed on three categories of locally manufactured goods, including locally manufactured or assembled SUVs and CUVs, locally manufactured or assembled vehicles having engine capacity of 1,400cc and above, and locally manufactured or assembled double cabin (4x4) pick-up vehicles, the report said.

The FBR has estimated that it can fetch Rs 7 billion by raising taxes on imported luxury goods and Rs 4 billion on locally manufactured vehicles.

Pakistan has already taken most of the other prior actions, which included hikes in fuel and energy tariffs, the withdrawal of subsidies in export and power sectors, and generating more revenues through new taxation in a supplementary budget.

On the IMF's behest, Pakistan unveiled a mini-budget on February 21, raising the GST rate from 17 to 18 per cent to fetch additional tax revenues of Rs 170 billion to unlock the IMF tranche, the report said.

The prerequisites by the lender are aimed at ensuring Pakistan shrinks its fiscal deficit ahead of its annual budget around June.

Pakistan and the IMF have been holding virtual talks after the two sides held ten days of intensive negotiations with an IMF delegation in Islamabad from January 31 to February 9, which failed to reach an agreement on the USD 1.1 billion tranche of funding from the global lender.

Finance Minister Ishaq Dar vowed on Thursday that the government was “absolutely committed” to completing the current USD 7 billion bailout programme with the IMF, indicating that Pakistan could sign the staff-level agreement with the global lender this week.