File photo
The federal government on Monday issued the Tax Laws (Second Amendment) Ordinance, 2022, withdrawing a fixed tax for retailers and imposing additional taxes on tobacco products to meet the funding gap, as required by the International Monetary Fund (IMF) prior to the revival of a stalled bailout program.
The ordinance has empowered the government to enact additional taxation measures for retailers in future, including the determination of the tax rate and the date at which it would be implemented. Earlier, Finance Minister Miftah Ismail had announced that while the government was withdrawing the fixed tax, imposed in the federal budget for the ongoing fiscal year, it would revisit its policies and re-introduce it after allowing for some concessions to small traders.
Under the previous scheme, the government had imposed a fixed tax on retailers, to be collected through commercial electricity connections, with an intent to collect Rs. 42 billion in revenue. According to Ismail, the Economic Coordination Council would deliberate on a new taxation scheme that would charge variable rates on traders based on their overall income. Once implemented, it would generate Rs. 27 billion in taxes from the retail sector.
As earlier announced, and legislated through the ordinance, the government would overcome the loss in taxable revenue by increasing the federal excise duty (FED) on tobacco from Rs. 10/kg to Rs. 390. It has also increased FED on Tier-1 cigarettes to Rs. 6,500/1,000 sticks from Rs. 5,900; and Tier-2 cigarettes from Rs. 1,850/1,000 sticks to Rs. 2,050.
The ordinance, which is being perceived as a mini-budget, also seeks to rationalize advance tax rates on passenger transport vehicles, while exempting from capital value tax passenger and goods transport vehicles and vehicles imported by foreign diplomats and missions. Earlier, the federal budget had imposed capital value tax on all types of motor vehicles with engine capacity exceeding 1,300cc, or 50kWh for electric vehicles. The government has also restored the exemption, from July 1, on allowance and perquisite paid or allowed outside Pakistan by the government to its citizens for services rendered outside the country.
Similarly, exemptions have been restored for income derived from the Kuwait Foreign Trading Contracting and Investment Company or the Kuwait Investment Authority under a sovereign agreement.
The ordinance, which would need to be passed into law by Parliament within six months, has also restored sales tax exemption on subsidies provided by federal or a provincial governments on natural gas to consumers, including RLNG. It has likewise restored sales tax exemption on local supply of single cylinder agriculture diesel engines of 3-36 HP.
Following the issuance of the ordinance, Pakistan has completed all necessary prerequisites for the restoration of a stalled IMF program and the disbursal of $1.18 billion in the next tranche, a key requirement to shore up the country’s foreign reserves. As part of the prior actions required by the IMF, the government has also secured additional funding of $4 billion from Qatar, Saudi Arabia and the United Arab Emirates to meet the revenue gap in the federal budget.