On Wednesday, Pakistan presented a supplementary finance bill to parliament, proposing to raise the goods and services tax (GST) from 17% to 18% in order to generate an additional 639 million rupees ($170 million) during the fiscal year that ends in July.
The nation has been in talks with the International Monetary Fund (IMF) about releasing crucial bailout funds. With roughly enough reserves to cover only three weeks' worth of imports, the country wants to raise revenue despite 27% inflation, which has been high for many years.
According to Fahad Rauf, head of research at a local brokerage called Ismail Iqbal Securities, the only positive aspect of the finance bill was that it would bring Pakistan one step closer to resuming the IMF program.
In order to lessen the budget's impact on those who are most susceptible to rising inflation, Finance Minister Ishaq Dar proposed exempting "daily use" items like wheat, rice, milk, and meat from the increase in GST.
Rauf stated, "It is regrettable that we only know how to increase indirect taxation and burden the existing taxpayers." Retailers, real estate, and agriculture, on the other hand, are not subject to income tax."
Rauf pointed out that even with the exemptions, raising the GST would cause inflation. Moody's Analytics' senior economist told Reuters on Wednesday that Pakistani inflation could average 33% in the first half of 2023 before trending lower.
Additionally, the finance bill called for a 25% increase in luxury item taxes, as well as increases in taxes on first- and business-class air travel, cigarettes, and sugary beverages.
Additionally, the government has proposed a 10% adjustable withholding tax on wedding venues and events.
The government proposed increasing handouts under the Benazir Income Support Programme (BISP), a welfare program, from 360 billion to 400 billion rupees in order to offset the budget's inflationary impact.
Cement duties were also restored to their pre-COVID levels of 2 rupees per kilogram.
The government wants to get the bill through parliament as soon as possible and even talked about making it a Presidential Ordinance.
But on Tuesday, President Arif Alvi, who is a member of the opposition leader Imran Khan's party, turned down the request. This forced the government to go through what it called a rushed session of parliament.
In Lahore, Khan stated to journalists that his party would oppose the bill.
He stated, "I have directed my party senators not to leave any stone unturned while opposing it," and "PTI senators would oppose this bill because it is anti-people."
Although Khan's party does not have enough votes to prevent the bill from being passed, it will increase political pressure on the government, which is already rushing to release the IMF's delayed tranche.