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January 22, 2020

Pakistan Mulls Duty Raise to Curtail Import of Luxury Goods

Pakistan’s government is mulling new taxes to curb the import of luxury goods and broaden the tax net to boost revenue as the South Asia’s second-biggest economy struggles to sustain the growth momentum it gained in the past two years.

Finance Minister Ishaq Dar told a parliamentary panel on finance that the rise in import of luxury goods was a source of concern for his government and his ministry is working on various proposals to reduce it through imposition of regulatory duties.

The Federal Board of Revenue has prepared a package to generate revenue and has been approved by the Prime Minister, according to a report in Dawn newspaper. Under an ongoing program with the International Monetary Fund, Pakistan needs to boost revenues to meet the shortfall and bring the budget deficit to within the agreed range.

According to Dawn, the FBR has decided to increase regulatory duty on 287 items, mostly processed eatables, ranging from 10 to 25 percent.

Dar said that Pakistan was unable to take benefits from the low oil prices in the global markets were offset by the rise in import of luxury goods, as the country tried to maintain its forex reserves which in recent months have hiked to record level.

Despite increase in import of luxury goods, Pakistan’s trade deficit has declined in first four months of the current fiscal year to October. But the decline in exports is also a worry as the country has not been able to take full benefit of declining oil and commodity prices.

The efforts to increase duties on luxury goods are to offset losses incurred by low exports.

Pakistan’s exports declined 13.42 percent in first four months to $7.95 billion, mainly due to reduce in value, though the quantum of exports has increased.

The Minister also informed the panel that the government is mulling new incentives to net the non-filers of income tax returns by offering fixed schemes. There could be new incentives to bring new taxpayers into the tax net.

Pakistan has one of the lowest tax-to-GDP ratio in the region, but the government of Prime Minister Nawaz Sharif which took over in 2013 has focused efforts to broaden the tax net with a combination of incentives and punitive measures.

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