ISLAMABAD

The government will impose International Monetary Fund-demanded new taxes on domestic consumer goods as well as luxury products to raise Rs40 billion next month.
"We are working on new tax measures, which are likely to be implemented from December 2015," said an official of the Federal Board of Revenue following a meeting between the FBR management and Finance Minister Ishaq Dar on Tuesday. "Finance minister has directed us to impose taxes on luxury items," the official said.
In addition to products such as electronic goods, the government could impose taxes on cigarettes, beverages, packed yogurt and cosmetics. Similarly, the extra taxes will be extended to imported items though the list of items has not yet been identified.
The officials also plan to continue with the higher General Sales Tax on petroleum products after next month to generate additional revenue. This would deprive the people of the benefit of tumbling oil prices, which have slumped in international markets. The government collects up to 45 percent GST on oil products against the standard rate of 17 percent.
Taken together, the measures are designed to raise an amount similar to the additional 1 percent on the standard 17pc GST rate that the IMF demanded but the government baulked at imposing.
A backlash against the higher taxes, likely to announced before the end of the month and imposed next month, is expected. The government's policy of continuing higher GST on petroleum products has raised hackles even before the announcement. "The government is imposing new taxes on the masses to run its expenditures", said Mohammad Noman (33) working in a private firm. "The petrol price should be according to the international market, as government is charging much higher from the masses."
The economists believed the government is trapped in a cycle of missed revenue targets followed by tax hikes. The unrealistic targets allow officials to raise spending but then force the government to make up the shortfall with higher taxes. "The government will announce a mini budget in every quarter to meet the unrealistic tax target of Rs3.1 trillion set for the current fiscal year," said Dr Ashfaque Hassan Khan, an economist. The government could not negotiate with the IMF, as it follows their directions, Khan said.
Higher sales tax on the petroleum products will deal a blow to some of the most productive parts of the economy such as the export manufacturers who will not be able to pass on the higher costs to foreign customers, he predicted.
Pakistan had missed the tax collection target by Rs40 billion during first quarter (July-September) of the current financial year, collecting just Rs600 billion. The IMF had linked the release of next tranche worth $502 million (Rs52-55 billion) with the imposition of new taxes. The Fund's board will approve $502 million for Pakistan in mid December if Islamabad imposed new taxes.
Pakistan had rejected the IMF's proposal of increasing standard rate of GST by one percent to 18 percent to generate additional Rs40-45 billion. Finance minister refused to do so as this would result in sharp increase in inflation. Inflation measured by Consumer Price Index (CPI) rose by 1.6 percent in October as against the same period of last year.
On the other hand, the business community has warned the government not to impose further taxes, saying such measures would bring additional woes to trade and bring harmful consequences for the economy. Instead, businessmen said, protected areas of the economy such as automobiles should bear a higher burden. "The government should immediately end all exemptions given to various sectors of the economy as these exemptions were a major source of tax distortions and big hurdle in expanding tax base", said Atif Ikram Sheikh, President Islamabad Chamber of Commerce and industry.
The government had already introduced massive taxation measures worth Rs253 billion in the budget 2015-2016 in order to reach its ambitious revenue collection target. The government had introduced new customs duties worth of Rs 41.95 billion, sales tax and Federal Excise Duty of Rs 54 billion and income tax of Rs 142.3-billion in the budget. The government has also withdrawn tax exemptions worth of Rs 132 billion for the next fiscal year.