ISLAMABAD - Finance Minister Miftah Ismail on Thursday announced to withdraw the ban on import of non-essential and luxury items and increase taxes on cigarettes and tobacco to comply with the directives of the International Monetary Fund (IMF).

Addressing a press conference here, the Finance Minister said that the government has decided to increase tax on cigarettes and tobacco to bridge the tax collection gap that created after waiving off fixed tax from small traders through electricity bills. The fixed tax on traders through electricity bill was an error, he said adding, “Even small shop owners were brought under the ambit, which was wrong.”

Now, the Finance Minister said, the variable taxes — 5 percent sales tax and 7.5 percent income tax — will still be imposed on every shopkeeper, which would be able to generate Rs27 billion during  the current fiscal year as against the target of Rs42 billion. The government was facing a shortfall of Rs15 to Rs18 billion after withdrawing the fixed tax from the traders. However, Prime Minister Shehbaz Sharif has approved to tax cigarettes and tobacco, which would generate double tax Rs36 billion. Sharing details, Miftah Ismail informed that the government has increased tax on tier-I cigarettes from Rs1850 to Rs2050 per thousand cigarettes.

Meanwhile, it has enhanced tax on tier-II from Rs5900 to Rs6500 per thousand cigarettes. Similarly, Rs10 per kg cess tax on tobacco is being increased to Rs380 per kg. The government would issue Presidential Ordinance in this regard.

He further informed that the government has also decided to withdraw the ban on the import of non-essential commodities to comply with the directions of the IMF and under the agreement with World Trade Organization (WTO). However, regulatory duties on luxury items would be enhanced three times or to maximum possible level and can go even up to 400 to 600 percent or more to discourage the imports of the luxury items. The heavy duties would be imposed on completely built-up (CBU) commodities — automobiles, mobile phones, and electronic appliances — and apart from them, the imported fish, meat, purse, and other such non-luxury items. “Even then, if a person wants to import a car that is originally worth Rs60 million [but after the regulatory duties] it will cost them Rs300-400 million, they can import it.”

Finance minister Miftah says tax on cigarettes and tobacco increased n Non-funded subsidy on electricity withdrawn as only funded subsidy to be given to power sector n 5pc sales tax and 7.5pc income tax on every shopkeeper to remain intact n Regulatory duties on luxury items to be multiplied and can go even up to

400 to 600pc to discourage luxury items imports

He explained that Pakistan is not having many dollars to spend on import of luxury items and the existing resources would be utilized to provide the people of the country with flour, wheat, cotton, edible oil instead of I-phones or luxury vehicles. He emphasized that there would be no restrictions on industrialists who were importing machinery to manufacture items for export, or on the import of spare parts in small quantities. However, there would be restrictions on industrialists who wanted to import machinery to manufacture items to be sold in the domestic market, he said.

The Finance Minister said that the government has withdrawn non-funded subsidy on electricity, as only funded subsidy would be given to the power sector.  The government would meet the primary budget surplus of Rs153 billion during the current fiscal year. The government would withdraw sales tax on subsidized electricity through the upcoming ordinance. He said that he would address the sales tax imposed on agricultural machinery as well. “It is a very minor thing and will have little fiscal impact.”

Talking about the trade deficit, Miftah Ismail informed that the trade deficit has shrunk by 30 percent till August 16 over the corresponding period of previous year. The country’s exports had increased by 7-8 percent and imports had reduced by 18-19 percent in current month. The money received in the banking system was $600 million higher than that of last year, he added. “The pressure on the rupee has ended because of this. It goes up and down sometimes; a breather is needed and profit-taking happens. I expect the [dollar’s] downward trend will continue. We will continue to live within our means.”

The Finance Minister informed that IMF has confirmed that its executive board would meet on August 29 for considering Pakistan’s request for the release of the $1.17 billion tranche. The government had already met all prior actions of the IMF. He said that the Executive Board of the IMF has been called after friendly countries including Saudi Arabia, the United Arab Emirates (UAE) and Qatar confirmed to the IMF that they had completed arrangements for $4bn in bilateral financing to Pakistan, which was the last hitch to the bailout package after completion of all the prior actions agreed under the staff level agreement (SLA). He informed that IMF wanted that Pakistan should increase its foreign exchange reserves by $6 to R6.5 billion. Therefore, it has asked to arrange additional financing of $4 billion from friendly countries.

Miftah Ismail informed that UAE had already announced it would invest $1 billion in Pakistan. “Reports about the other $3 billion have been received but since those countries have not announced it … when they announce it, we will announce it too. But the IMF has announced its meeting which means they have received confirmation from those countries.” While responding to another question, the minister said Prime Minister Shehbaz Sharif would visit Qatar soon and any agreements would be announced then.

He said that in the month of August, Pakistan’s stock exchange and currency were among the best performers globally — showing that the government’s plans are working. He further said that the government was adopting self-reliance policy to remain within its resources and curtail fiscal deficit and bring imports of the country to the level of exports plus remittance to check current account deficit.