A crucial tax amendment bill to fulfil the conditions of the International Monetary Fund (IMF) to revive a stalled loan programme that the country needs to stave off default was presented in both houses of parliament on Wednesday.
Finance Minister Ishaq Dar introduced the Finance (Supplementary) Bill 2023 first in the National Assembly and then in the Senate. Both the sessions were later adjourned till February 17 (Friday).
The finance bill proposes the following:
- GST to be increased from 17pc to 18pc; GST on luxury items to increase from 17pc 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 federal excise duty on cigarettes, and aerated and sugary drinks
- Increase in federal excise duty on cement from Rs1.5/kg to Rs2/kg
- Benazir Income Support Programme (BISP) budget increased to Rs400bn from Rs360bn
National Assembly
Addressing the lower house of parliament, Dar compared the performance of the previous PML-N and PTI governments. He said that during former prime minister Nawaz Sharif’s tenure, the GDP per capita increased while the Pakistan Stock Exchange’s (PSX) market capitalisation was $100 billion.
However, the PSX’s market capitalisation declined to $26bn during the PTI government, he said, adding that the decrease showed a lack of investor confidence in the previous government.
Dar also criticised the PTI government for increasing the country’s debts significantly. “In 2017-18, GDP growth had surpassed six per cent, inflation was at 5pc, food inflation at 2pc … After the 2018 elections, a selected government came into power. Because of its failures, Pakistan’s economy shrunk.”
The finmin also assured the House that the prime minister and his cabinet would adopt “simplicity” and the former would take the nation into confidence soon in this regard.
Dar hoped that the country would again move towards development. “But it is our responsibility to adopt the measures, and give sacrifices. The premier will demonstrate frugality and the cabinet will also reduce its expenses.”
He said that the economy was plagued by two major issues: fiscal deficit and current account deficit. “We are committed to controlling and reducing both these deficits. Through the IMF programme, our foreign exchange reserves will increase, the rupee will stabilise, our exports and remittances will also improve and issues regarding opening of LCs will also cease.”
Dar expressed the hope that the Federal Board of Revenue (FBR) would achieve its collection targets. He said that the Rs170bn collected under the measures introduced in the finance bill would reduce the country’s fiscal deficit.
The minister ended his speech by reminding the House that each time he presented a budget between 2013 and 2017, he had stressed the need for a “national economic agenda — a charter of economy”.
“We should come together and compile a national economic agenda, and implement it [regardless] of which government is in power […] but somehow I was not able to achieve this wish.”
He highlighted that in 2013 the country was on the cusp of defaulting when all politicians came together to change the direction Pakistan was heading in. He said that this was needed now more than ever.
“Right now, what is direly needed is that we come together as one and formulate a roadmap for Pakistan’s economy. Again I invite everyone to sit down and adopt a single national approach towards our economy.”
Once the minister wrapped up his speech, the NA speaker said that the bill would not be referred to the relevant standing committee under Rule 122 of the Rules of Procedure.
During this time, the reporters present in the press gallery had staged a walkout after Azad Jammu and Kashmir (AJK) Prime Minister Sardar Tanveer Ilyas allegedly misbehaved with one of their colleagues. However, the reporters returned to the gallery after Qamar Zaman Kaira and Shazia Marri intervened.
PTI dissident Noor Alam Khan, meanwhile, said that whenever the country’s finance ministers wanted to burden the masses with inflation, they come to the lower house of parliament. “And only then do they remember the members of the assembly.”
He said that this was his second term as a lawmaker, lamenting that he hadn’t seen the country prosper during this time. “I have only seen two people benefitting. The previous finance minister opened a very nice bank […] I am surprised that he is on TV these days and this finance minister too.”
He noted that the price of flour had drastically increased from Rs1,200 for a 20kg to more than Rs3,000. He said that the price of sugar had also increased exponentially over the years while Urea and DAP had increased to Rs3,300 and Rs13,000, respectively.
“If you facilitate industries, the farmers do not benefit. You don’t cater to 70pc of the nation […].”
He further said that the government was talking about electricity being expensive. “You give officers 1,300 units [of free electricity] but take bills from the poor man. You take the bill from the poor man and then hold us responsible [by] increasing the price.”
He said that lawmakers were not responsible for upgradation yet they were laying down gas pipelines and erecting transformers. “Is this our job? No, but we do it […] our mothers and daughters are left to rot in the heat while those officers sit in air-conditioned rooms.”
Picking up a copy of the finance bill, the lawmaker said: “What is the use of this? What is this basically […] go and catch those with 300 kanal homes, catch yourself and other leaders.”
He said Pakistan was a country where there were “only taxes and taxes, and no benefits”. “If you impose taxes then give some benefits too. We only remember the people when we go to seek votes. But you don’t remember them when you impose taxes.
“Don’t just shout slogans for the poor, think about them as well.”
He further said: “Those collecting taxes are thieves. Your department is [full of] thieves. We, the people of the nation, pay our taxes.”
The NA session was later adjourned till 10:30am on February 17 (Friday).
Senate
After wrapping up his speech in the NA, the finance minister headed to the Senate to table a copy of the finance bill.
However, the proceedings did not go as smoothly as opposition lawmakers chanted slogans and surrounded the chairman’s dais as Dar moved the motion.
The Senate session was marred by opposition members chanting “imported government na manzoor” and “PDM government na manzoor”.
Amid the chaos, Senate Chairman Sadiq Sanjrani said: “The notices for the proposal to make recommendations on the money bill may be submitted by the members to the Senate Secretariat by Thursday, February 16, 2023 at 10am.
“These recommendations should be in reference to the said bill. The recommendation having no relevance to the bill that is outside the purview of Article 73 and hence not admissible.
“The proposal received for making recommendations on the money bill shall be sent to the Senate Standing Committee on Finance and Revenue which shall submit its report by Friday, February 17, 2023.”
He continued that on Friday the Senate would consider the committee’s report and make recommendations to the lower house of parliament accordingly. He then adjourned the session till 10:30am on Friday.
President ‘refuses’ ordinance
The government was forced to head to parliament after President Arif Alvi “advised” the finance minister to take parliament into confidence instead of using an ordinance to bring into effect the Rs170 billion in new taxes that are being levied.
Soon after the president’s ‘refusal’, a cabinet meeting was convened to approve the tax amendment bill which would be tabled in both houses of parliament today, as per a statement issued by the PM Office after the meeting.
Following the cabinet meeting, in a later-night development, the Federal Board of Revenue (FBR) issued SRO178 to enhance a federal excise duty on locally manufactured cigarettes which would generate up to Rs60bn in taxes on tobacco products and the Finance Division issued a notification increasing the general sales tax by one per cent to 18pc. These measures would raise Rs115bn.
Since the government had agreed to a target of Rs170bn in new taxes with the IMF, the remaining amount of Rs55bn would be collected through an increase in excise duty on airline tickets, and sugary drinks and an increase in withholding tax rates after the Finance (Supplementary) Bill 2023 is approved by parliament today.
Breakdown of taxes
The government agreed with the IMF to raise Rs170bn through taxes. Of this,
- Rs60bn will be generated by increasing federal excise duty on locally manufactured cigarettes
- Rs55bn by increasing the general sales tax to 18pc
- Rs55bn by increasing excise duty on airline tickets, and sugary drinks and raising withholding tax rates (following the bill’s approval by parliament)
Pakistan held 10 days of intensive talks with an IMF delegation in Islamabad — from Jan 31 to Feb 9 — but could not reach a deal.
The IMF, however, said in an earlier statement that both sides have agreed to stay engaged and “virtual discussions will continue in the coming days to finalise the implementation details” of the policies, including the tax measures, discussed in Islamabad.
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.
Additional reporting by Amir Wasim