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Pakistan hikes tax on luxury goods and services to get IMF deal



Pakistan hikes tax on luxury goods and services to get IMF deal

Years of financial mismanagement have pushed Pakistan’s economy to the brink of collapse


Pakistan’s parliament on Monday gave the government the go-ahead to raise taxes on a bunch of luxury imports and services to unlock the next tranche of International Monetary Fund (IMF) loan.

Facing critically low foreign exchange reserves, the government has already barred most imports – apart from food and pharmaceuticals – but hopes to boost revenue with a sweeping tax hike.

Years of financial mismanagement and political instability have pushed Pakistan’s economy to the brink of collapse, exacerbated by a global energy crisis and devastating floods that could submerge a third of the country in 2022.

However, with elections due by the end of the year, the government has been reluctant to be too harsh in case the polls are penalised.

Parliament on Monday approved a supplementary finance bill that hikes sales tax on imports ranging from cars and home appliances to chocolate and cosmetics from 17 to 25 per cent.

People will also have to pay more for business class air travel, wedding halls, mobile phones and sunglasses.

A general sales tax was increased from 17 to 18 percent.

“The prime minister will also unveil austerity measures in the next few days,” Finance Minister Ishaq Dar told the National Assembly.

Pakistan is desperate to unlock the next tranche of a $6.5 billion loan facility with the IMF but is struggling to meet tough conditions set by the global financier.

The IMF is demanding that Pakistan widen its pitifully low tax base, end exemptions for the export sector, and raise artificially low energy prices meant to help poor households.

“People who are making good money in the public or private sectors need to contribute to the economy,” IMF Managing Director Kristalina Georgieva told German state broadcaster Deutsche Welle over the weekend.

“It should not be that subsidies benefit the rich. It should be the poor who benefit from them.”

When introducing the bill this month, Dar told parliament the luxury tax would generate an additional 170 billion rupees ($650 million).

“These are items that are widely used by the rich class,” he said, adding that “there will be minimal burden on the common man”.

While an IMF cash injection will not be enough to save Pakistan on its own, it is necessary to boost confidence and open the doors for more lending to friendly countries such as Saudi Arabia, China and the United Arab Emirates.

(This story has not been edited by NDTV staff and was auto-generated from a syndicated feed.)

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