The National Assembly session was adjourned indefinitely on Friday after failing to pass the critical finance bill required for Pakistan to re-enter the IMF program. The Fund’s board is scheduled to meet in Washington, D.C. on January 12, and it was expected that the bill would be passed before then. However, this appears to be difficult now that officials have stated that the National Assembly session may be called by the middle of the month.
This would imply that the government intends to persuade the IMF to either postpone its meeting or approve the program on the condition that the bill is passed in the next Assembly session. The delay was explained by the information minister, who stated that the bill had been sent to the Senate, which could take up to two weeks to either add or reject it.
However, it is reported that the government’s allies are still opposed to the bill. Most agree that if passed, the bill will cause another round of inflation and impose a significant political cost on the government and its allies. With the second round of LG polls in KP and Punjab due in the coming weeks, the ruling parties are legitimately concerned about a voter backlash. If the results of the first round of KP’s LG polls are any indication, this concern is not unjustified. If the allies dither, the government may run into parliamentary numbers problems. The proroguing of the National Assembly may be intended to buy time for the government to gather the necessary support to pass the bill. Failure to do so may cause the government to have existential concerns. The opposition may also use this time to court allies to defeat the bill.
When it has the necessary numbers, the government has never shied away from bulldozing bills. A recent example is the passage of nearly three dozen bills through a joint session of parliament. The government did not allow a debate on the bills, preferring to use its overwhelming majority to force them through the House. The fact that it is moving slowly on the finance bill may indicate apprehension about the numbers.
The opposition is in an advantageous position. If the government fails to pass the bill, it will be considered a no-confidence vote, and the government will be required to demonstrate that it still has the support of a majority. If the bill is passed, the political ramifications will be disastrous. This could be one of the reasons why the opposition does not appear to be in a rush to gather the necessary numbers to stop the bill. Politics in parliament is now a high-stakes game.
All You need to know about mini budget:
The bill aims to meet the conditions set by the International Monetary Fund (IMF) for the financial institution to pass Pakistan’s sixth review of the $6 billion Extended Fund Facility (EFF), allowing for the distribution of a $1 billion tranche.
Amendments to income tax, sales tax, and federal excise legislation are suggested in the bill to levy Rs375 billion in taxation measures. These include the cancellation of Rs343 billion in tax breaks.
Imported Mobile phones will more expensive:
Once implemented, the measure will impose a 17 percent universal sales tax on imported mobile phones costing more than $200.
Fixed tax rates were previously imposed to imported handsets, which were separated into three groups based on price. Imported phones costing $200 to $300 had to pay a tax of Rs1,740, $350 to $500 had to pay a tariff of Rs5,400, and phones costing more than $500 had to pay a tax of Rs9,270.
In addition to the advanced tax on imported devices, the advanced tax on cellular services will be raised from 10% to 15%.
With the government proposing a 17 percent sales tax on imported machines for mobile phone production, the price of domestically manufactured mobile phones could rise.
Edibles Ship in:
If the finance bill is passed, some delicacies, particularly imported ones, would become more expensive.
The bill proposes a 17 percent sales tax on a number of items that were previously tax-free. Imported live animals, steak meat, seafood, veggies, high-end bakery items, branded cheese, and sausages are all considered luxury items by the government. Furthermore, a 17 percent sales tax on imported raw materials needed to make infant food has been proposed.
Even though chicken and beef are among the tax-free basic foods, they may become more expensive as a result of the of Mini Budget Bill, which will boost the sales tax on imported poultry machines from 10% to 17%, as well as the tax on domestic poultry and cow feed from 7% to 17%.
The measure also proposes raising the general sales tax on dairy products sold in branded packaging from 10% to 17%.
Locally Manufactured Cars:
The federal excise duty on automobiles with an engine capacity between 1,001cc and 2,000cc would increase from 2.5pc to 5pc following the passage of the financial bill. Similarly, the duty on automobiles with engines larger than 2,000cc would be increased from 7.5 percent to 10 percent.
In the meantime, the sales tax on domestically produced automobiles with engines larger than 850cc will be raised from 12.5 to 17 percent.
The federal excise charge on locally built double cabin automobiles will rise from 7.5 percent to 10 percent.
Imported Vehicles:
The bill proposes increasing the federal excise duty on imported automobiles with engine capacities of 1,001cc to 1,799cc from 5% to 10%, from 25% to 30% on vehicles with engine capacities of 1,800cc to 3,000cc, and from 30% to 40% on vehicles with engine capacities greater than 3,000cc.
It also proposes raising the charge on imported double cabin vehicles from 25% to 30%, as well as increasing the tariff on hybrid electric vehicles with engines up to 1,800cc from 8.5 to 12 percent.
Raising the advanced tax rate:
Furthermore, the bill proposes raising the advanced tax on cars with a displacement of up to 1,000cc from Rs50,000 to Rs100,000, on those with a displacement of 1,001cc to 2,000cc from Rs100,000 to Rs200,000, and on those with a displacement of more than 2,000cc from Rs200,000 to Rs400,000.
Services get more expensive, but just in Islamabad:
A 5% advance tax is suggested in the bill for a variety of services, including those supplied by health clubs, gyms, indoor sports facilities, and massage centres. This levy will also cover services such as laundry and dry cleaning, auto dealership services, wedding halls, catering, IT services, site design and hosting, and call centers, among others.
Medicines:
Medicines may become more expensive as a result of the legislation’s proposal to remove tax breaks worth Rs160 billion from the pharmaceutical industry. It will also result in the implementation of a 17 percent sales tax on imported pharmaceutical active ingredients raw materials.
What More?
A 5 percent sales tax on imported laptops and a 17 percent levy on imported publications and journals are also proposed in the measure.
In addition, a 17 percent tax on personal computers, sewing machines, matchboxes, iodized salt, red Chile, and contraception has been proposed.
For the textile industry, the bill proposes raising the sales tax from 10% to 12% on sales from retail outlets connected to the Federal Board of Revenue via a point of sale system — an online real-time system for sales documentation that connects big retailers’ computerised sales systems to the FBR’s system via the internet.
Simply put, if the bill is passed, garments and clothing will most likely become more expensive.
Tax exemptions to REIT extended:
On a separate note, the legislation also proposes extending tax exemptions available to Real Estate Investment Trust (REIT) — companies that own or finance income-producing real estate across a range of property sectors — to special purpose vehicles — a subsidiary created by a parent company to isolate financial risk — set under REITs.
