The National Assembly (NA) saw another session marked by tumult and confusion on Thursday, when Finance Minister Shaukat Tarin introduced the Finance (Supplemental) Bill 2021 — which the opposition has dubbed a “mini budget” — amid loud protests and outcry from the opposition.
The bill is intended to fulfil the International Monetary Fund’s requirements for the financial institution’s approval of Pakistan’s sixth review of the $6 billion Extended Fund Facility (EFF), clearing the way for the distribution of a payment of roughly $1 billion. The bill proposes revisions to income tax, sales tax, and federal excise legislation in order to impose Rs375 billion in taxing measures. These include the elimination of Rs343 billion in tax breaks.
Taxes on Cellular Services
Mobile phone calls are becoming more expensive, and so are the imported phones. Once implemented, the law will impose a 17 percent uniform sales tax on imported mobile phones priced above $200. Previously, fixed tax rates were applied to imported phones, which were classified into three price groups. A tax of Rs1,740 was levied on imported phones costing between $200 and $300, Rs5,400 on phones costing between $350 and $500, and Rs9,270 on phones costing more than $500.
Apart from imported devices, the advanced tax on cellular services would be raised from 10% to 15%. There is also a possibility that the price of locally manufactured mobile phones would rise, with the government proposing a 17 percent sales tax on imported machinery used in mobile phone production.
Several delicacies, particularly imported ones, would become more expensive if the budget law is enacted. The bill proposes a 17 percent sales tax on a variety of formerly tax-exempt commodities. These products are classified as luxury commodities by the government and include imported live animals, steak meat, seafood, vegetables, high-end bakery items, branded cheese, and sausages. Furthermore, a 17 percent sales tax on imported raw materials used in the production of baby food has been proposed.
Taxes on Basic Food Commodities
Even though chicken and beef are among the fundamental food commodities exempt from tax, they may become more expensive as a result of the law, which would boost the sales tax on imported poultry machinery 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%.
Impact on Automobiles
Following the passage of the financial law, the federal excise duty on automobiles with engine capacities ranging from 1,001cc to 2,000cc would rise from 2.5pc to 5pc. Similarly, the duty on automobiles with engines larger than 2,000cc would be increased from 7.5 percent to 10 percent.
Meanwhile, the sales tax on locally assembled automobiles with engines larger than 850cc would be raised from 12.5 percent to 17 percent. The federal excise charge on locally built double cabin automobiles will rise from 7.5 percent to 10 percent. The law proposes increasing the federal excise tax on imported automobiles with engine capacities ranging from 1,001cc to 1,799cc from 5% to 10%, vehicles with engine capacities ranging from 1,800cc to 3,000cc from 25% to 30%, and vehicles with engine capacities greater than 3,000cc from 30% to 40%.
It also recommends raising the levy on imported double cabin cars from 25% to 30% and the duty on hybrid electric vehicles up to 1,800cc from 8.5% to 12%.
Furthermore, the law proposes raising the advance tax on cars up to 1,000cc from Rs50,000 to Rs100,000, on vehicles 1,001cc to 2,000cc from Rs100,000 to Rs200,000, and on vehicles larger than 2,000cc from Rs200,000 to Rs400,000. Services are also becoming more expensive, but just in Islamabad.
Taxing Other Basic Services
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 centers. This fee will also include laundry and dry-cleaning services, auto dealership services, marriage halls, catering, IT services, site design and hosting, and contact centers, among other things.
Medicines may also become more costly as the legislation proposes eliminating tax breaks worth Rs160 billion for the pharmaceutical industry. It will also result in a 17 percent sales tax on imported raw materials for pharmaceutical active chemicals. In addition, the bill proposes a 5% sales tax on imported computers and a 17% tax on imported publications and journals.
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Furthermore, a 17 percent tax on personal computers, sewing machines, matchboxes, iodized salt, red pepper, and contraception has been proposed. The act stipulates an increase in sales tax from 10% to 12% on sales from retail outlets connected with the Federal Board of Revenue via a point-of-sale system — an online real-time system for sales documentation that connects the computerized sales systems of large retailers to the FBR’s system via the internet. Simply put, if the law is enacted, garments and clothing will most certainly become more costly.
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