ISLAMABAD: To raise Rs115 billion out of the anticipated Rs170 billion mini-budget, the government on Tuesday increased the general sales tax (GST) rate to 18% and sharply hiked levies on cigarettes with immediate effect.
After President Arif Alvi refused to approve an ordinance sent by the government, the federal cabinet moved to enforce a further condition imposed by the International Monetary Fund (IMF) for the restoration of the $6.5 billion initiative that had been halted.
However, the global lender will only approve measures that are permanent in nature, which the government will ensure by obtaining parliamentary approval.
According to Finance Minister Ishaq Dar, after the cabinet meeting, the federal cabinet used its administrative authority to increase the GST rate by 1% to 18% and increase the federal excise duty (FED) rates on cigarettes to implement additional taxes of Rs115 billion as of midnight.
For the first time ever, the government significantly raised cigarette taxes, which had a significant negative impact on the tobacco industry.
The Federal Board of Revenue (FBR) informed the FED of a 153% price rise in premium brands of cigarettes, from Rs6.5 per pack to Rs16.5 per pack. For less costly brands, the increase in price per stick is 98% higher, from Rs2.55 to Rs5.05.
The proposed legislation, which the government had previously given to the federal cabinet, will now be considered by parliament on Wednesday (today).
The federal cabinet has the power to raise the GST rate, and the FBR has the right to independently raise the FED rate on cigarettes, according to the finance minister.
The administration has called separate sessions of the National Assembly and the Senate on Wednesday to give the instantly notified Rs115 billion in tax measures long-term legal protection (today).
In just four and a half months, a 1% increase in the GST will bring in at least Rs55 billion out of the total amount of Rs115 billion. The FED on cigarettes would be raised in order to collect a maximum of Rs60 billion.
The rates for the items listed in the third schedule of the Sales Tax Act will also rise, although this hike will only take effect if a parliamentary act is passed.
After President Dr. Arif Alvi refused to issue the presidential edict, the decision was made to employ the administrative authorities, according to Dar. He continued by saying that the president had suggested calling a session of the parliament to approve these levies, but that this would take eight to ten days.