In the latest financial development in our hostile neighbour, the country’s parliament has authorized the government to increase taxes on a number of high-end goods and services. The move is an attempt to secure the next instalment of an International Monetary Fund (IMF) loan, in order to help their dwindling economy.
The government has already stopped most imports, with the exception of food and medicine, due to critically low foreign exchange reserves. However, the cash-strapped nation intends to increase revenue with the sweeping tax increase.
Pakistan’s economy is on the verge of collapse as a result of years of corruption and fiscal mismanagement, as well as political unrest. Global oil shortages and catastrophic floods that enveloped a third of the country in 2022, added greatly to the country’s financial woes.
A supplementary budget law that raises the sales tax on imports of everything from automobiles and home appliances to chocolate and cosmetics from 17 to 25 per cent was adopted by the parliament on Monday. Other expenditures that people now have to pay more for include business-class airfare, wedding venues, cell phones, and sunglasses.
General sales tax witnessed an elevation from 17% to 18%.
However, the government is reluctant to be overly tough because an election is scheduled for the end of the year. It doesn’t want to deal with the fallout from making exceedingly tough decisions.
“We will have to make difficult decisions,” finance minister Muhammad Ishaq Dar said to the national assembly as the bill was enacted, adding, “the prime minister would also announce other austerity measures in the coming days.”
The country’s prime minister has recently asked its foreign office to reduce staff and cut expenses as part of the austerity drive.
Dar estimated that the luxury tax would bring in an additional 170 billion rupees (or $650 million) while presenting the bill to the legislature, this month.
He said that it would “place the minimum burden on the common man” and said, “These are the products which are extensively used by the upper class.”
Pakistan is straining to meet the IMF’s stringent requirements, which it needs to fulfil in order to receive an instalment of a $6.5 billion financing facility.
Pakistan is under pressure from the IMF to increase its relatively small tax base, eliminate concessions for exporters, and increase artificially low energy prices that are designed to aid low-income families.
Although an IMF cash infusion won’t be sufficient to save Pakistan on its own, the nation sorely needs it to inspire trust in “friendly states” like Saudi Arabia, the United Arab Emirates, and China for additional financial aid.