The government has moved a summary for slapping higher general sales tax (GST) —from 18 to 25% — on more luxury items to fetch an additional Rs11 billion in revenue, in a bid to convince the International Monetary Fund (IMF) to release $1.1 billion tranche as forex reserves remain dangerously low.
The federal cabinet has received the summary and has been asked to approve the addition of new items to the list.
The number of commodities on which the government intends to levy a higher GST rate of 25% has increased. These things include jewels, wristwatches, boats, and airplanes (for leisure, recreation, and private usage).
Only SUVs and CUVs, cars with an engine size of 1400cc and higher, and quad-cab pickup 4×4 trucks are included in the list of locally built motor vehicles that would be subject to a higher tax rate of 25%.
However, some types of vehicles, such as locally produced EVs (Electric Vehicles) with batteries up to 50 Kwh in capacity, electric three-wheelers, e-bikes, and hybrid electric vehicles (HEVs) with engines up to 2500cc have been left off the list, and will continue to be taxed at a reduced rate as stipulated in the Eighth Schedule to the Sales Tax Act of 1990.
All commercial vehicles, including pickup trucks with a standard cab (two doors) and passenger transport vehicles, are also excluded from the list.
In order to utilize its authority under clause (b) of sub-section (2) read with the first proviso to clause (a) of sub-section (2) of section 3 of the Sales Tax Act of 1990, it is proposed that the federal government may increase the sales tax rate on luxury goods, which are currently subject to a standard rate of sales tax, from 18 to 25%.
This taxation approach is expected to generate revenue of Rs. 7 billion on imported luxury products and Rs. 4 billion on locally produced luxury automobiles.
The imported commodities that have been chosen for the 25% higher sales tax rate are the same ones that the cabinet has deemed to be “luxury goods” and that were prohibited from importation in May 2022 through SRO No. 598(I)/2022 on May 19.
These products included the import of aerated water and juices, automobile completely built units (CBU), sanitary and bathroom items, carpets (excluding those from Afghanistan), chandeliers and lighting equipment, chocolates, cigarettes, confectionery items, cornflakes, cosmetics, shaving items, tissue papers, crockery, decoration/ornamental devices, dog and cat food, doors and window frames, fish, furniture, homes appliances (CBU), ice cream, jam, fruits and dry fruits, furniture, homes appliances.
Due to the urgency, it is also proposed that Shehbaz Sharif, the prime minister, may excuse the need to submit the summary to the cabinet committee for the disposition of legislative cases (CCLC) and allow submission of the summary to the federal cabinet through circulation.
