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Pakistan Likely To Hike Tax on More Luxury Items Including Foods

BUSINESS:The government changed a summary to include additional items on the list for raising the increased General Sales Tax (GST) rate from 18 percent to 25 percent in order to please the International Monetary Fund (IMF) and garner an additional Rs11 billion in revenue.

The government increased the GST Tax rate to 25% for additional items, such as private use aircraft, boats, and ships, as well as jewelry and wristwatches. A higher GST rate will now be applied to these items.

Only SUVs/CUVs, other vehicles with an engine capacity of 1400cc or more, and double-cabin 4x4s are proposed to be taxed at a higher rate of 25% for the locally manufactured motor vehicles that are intended to be treated as luxury goods.

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However, the categories of vehicles that are charged at a lower rate, such as locally manufactured EVs (Electric Vehicles) with battery capacities of up to 50 kilowatt hours, electric three-wheelers, e-bikes, and hybrid electric vehicles (HEVs) with engine capacities of up to 2500 cc, have been left off the list and will continue to be charged at the lower rate as stipulated in the Eighth Schedule to the Sales Tax Act of 1990.

In addition, all commercial vehicles, including passenger transport vehicles and single-cabin vehicles, are excluded from the list and would continue to be subject to sales tax at the current rates.

In the exercise of its powers 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, 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 percent.

The estimated revenue impact of this taxation measure on imported luxury goods and locally manufactured luxury vehicles is Rs7 billion.

The imported goods selected for the increased sales tax rate of 25% are the same items that the cabinet classified as “luxury goods” and banned in May 2022 via SRO No. on May 19, 2022, in 598(I)/2022.

Carpets (excluding Afghanistan), chandeliers, lighting devices or equipment, chocolates, cigarettes, confectionary items, cornflakes, cosmetics, shaving items, tissue papers, crockery, decoration/ornamental devices, dog and cat food, doors and window frames, fish, footwear, fruits and dry fruits, furniture, homes appliances (CBU), ice cream, jams, jellies, and preserved fruits, luxury leather jackets and apparels, mattress and sleeping bags, frozen or processed meat, mobile phone (CBU

Due to the urgency, it is also suggested that Prime Minister Shehbaz Sharif accept the requirement to submit the summary to the cabinet committee for the disposal of legislative cases (CCLC) and permit the summary’s distribution to the federal cabinet.