February 21, 2023
ISLAMABAD – The National Assembly (NA) on Monday passed the Finance (Supplementary) Bill, 2023, aimed to amend certain laws relating to taxes and duties to raise an additional Rs170 billion in the next four and half months to meet the last prior actions agreed upon with the International Monetary Fund (IMF).
The government is in a race against time to implement the tax measures and reach an agreement with the IMF as the country’s reserves have depleted to a critically low level of $2.9bn, which experts believe is enough for only 16 or 17 days of imports. The agreement with the IMF on the completion of the ninth review of a $7bn loan programme would not only lead to a disbursement of $1.2bn but also unlock inflows from friendly countries.
Finance Minister Ishaq Dar introduced the bill in the NA on February 15, and the formal debate started on it after moving a motion by Commerce Minister Syed Naveed Qamar on Feb 17.
In his concluding speech in today’s NA session, Dar said that the bill proposed to impose new taxes of Rs 170bn to minimise the fiscal deficit.
He said that his economic team had a “hectic routine” during the last 10 days and it held talks with the IMF to revive the programme, during which it agreed to take some “tough decisions” for streamlining the deteriorating condition of the economy.
Dar said the new revenue measures would not affect the poor segments of society as most of the new taxes were being imposed on luxury items not used by them. In order to help the poor cope with the rising inflation, he said the government had also proposed a Rs40bn increase in the budget of the Benazir Income Support Programme (BISP).
He said the Senate Standing Committee on Finance had proposed some amendments related to federal excise duty on air tickets to different countries which were adopted.
Dar expressed satisfaction with the performance of the Federal Board of Revenue (FBR) and hoped that the revenue collection target set for the year 2022-23 would be achieved “easily”.
He said the IMF was also concerned over huge losses, such as the power sector facing losses of around Rs1,450bn per year. He said that a total amount of Rs3,000bn is being spent to generate electricity while the government collects only Rs1,550bn.
Dar said that due to power theft, line loss and non-payment of electricity bills, the government was facing almost a Rs1,450bn deficit.
The finance minister said that both houses of parliament had talked about reducing expenses and Prime Minister Shehbaz Sharif would give a comprehensive road map in the coming days for austerity measures.
Dar also criticised the economic policies of the previous government and said that “poor management and lack of fiscal discipline damaged the economy”.
He said that the PTI government did not fulfil commitments with the IMF and “sabotaged the economy” before its ouster. Dar added that it was the state’s obligation to honour the agreement signed with the IMF so the present government was implementing the points agreed upon by the PTI government.
The finance minister said that due to the reforms being taken by the incumbent government, the economy would “first get stabilised and then witness rapid growth in the coming years”.
The minister also thanked the members from both houses of parliament for their recommendations on the bill. He said their feedback has been reviewed and it would be incorporated into the upcoming budget.
Two measures — raising the federal excise duty (FED) on cigarettes and increasing the general sales tax (GST) rate from 17 per cent to 18pc — have already been implemented through Statutory Regulatory Orders. The FBR expects to generate Rs115bn from these two measures.
The finance bill proposes the following:
.GST to be increased from 17pc to 18pc; GST on luxury items to increase to 25pc
.On first class and business class air tickets, federal excise duty of 20pc of the airfare or Rs50,000,
whichever is higher
.10pc withholding adjustable advance tax on the bills of wedding halls
.Increase in FED on cigarettes, and aerated and sugary drinks
.Increase in FED on cement from Rs1.5 to Rs2 per kg
.Benazir Income Support Programme budget increased to Rs400bn from Rs360bn
The finance bill also proposes increasing GST from 17 per cent to 25pc on 33 categories of goods covering 860 tariff lines — including high-end mobile phones, imported food, decoration items, and other luxury goods. However, this raise will be notified through another notification.
Through the finance bill, the excise duty on cement has been raised from Rs1.5 to Rs2 per kilogram, a measure estimated to fetch another Rs6bn.
The excise duty on carbonated/aerated drinks has been raised to 20pc from 13pc to raise an additional Rs10bn for the government.
A new excise tax of 10pc was proposed on non-aerated drinks like juices — mango, orange, etc. — to raise an additional tax of Rs4bn.
The increase in excise duty on business-, first- and club-class air tickets will raise an additional Rs10bn for the government. A tax rate of 20pc (or Rs50,000, whichever is higher) has been proposed on the value of air tickets.
The government has also proposed a 10pc withholding tax on functions and gatherings held in marriage halls, marquees, hotels, restaurants, commercial lawns, clubs, community places, or other places. The FBR expects to raise Rs1bn to Rs2bn from this tax.
These measures proposed through the finance bill are in addition to earlier steps agreed upon with the IMF, including increasing electricity and gas rates and allowing a free-floating exchange rate.
To offset the inflationary impact of the budget, the government proposed that handouts under the BISP welfare scheme be increased to a total of Rs400bn from Rs360bn.