The government has recently announced an increase in the sales tax rate from 17 percent to 25 percent on a selection of luxury goods and imported items across 33 categories, encompassing 860 tariff lines. This decision, aimed at generating additional tax revenue, will affect a range of products, including high-end mobile phones, imported food, decorative items, and other luxury goods.
The Federal Board of Revenue (FBR) issued SRO297 of 2023 on Wednesday night to enact this change as part of a larger effort to meet the tax revenue target of Rs170 billion and unlock a tranche from the International Monetary Fund (IMF). This tax increase was implemented in two phases, with previous adjustments on February 14 and March 1, with the final phase taking effect now.
The categories of imported food subject to the 25 percent sales tax include confectionery, jams, jelly, fish, frozen fish, sauces, ketchup, fruits, dry fruits, preserved fruits, cornflakes, frozen meat, juices, pasta, aerated water, ice cream, and chocolates.
Other products now subject to the higher sales tax rate include completely built-up unit (CBU) vehicles, sanitary and bathroom wares, home appliances, cosmetics, crockery, pet food, private weapons and ammunition, shoes, chandeliers and lighting (except energy-efficient options), headphones and loudspeakers, doors and window frames, traveling bags and suitcases, sanitary ware, carpets (excluding those from Afghanistan), tissue paper, furniture, shampoos, luxury mattresses, sleeping bags, bathroom ware, toiletries, heaters, blowers, sunglasses, kitchenware, cigarettes, shaving goods, luxury leather apparel, musical instruments, salon items like hair dryers, and decoration/ornamental articles.
The increased sales tax will also apply to dog and cat food, ships designed for recreation, aircraft designed for private use or recreation, and articles of jewelry and wristwatches. Additionally, the higher GST rate will be applicable to the supply of locally manufactured goods, including locally manufactured or assembled SUVs and CUVs, vehicles with an engine capacity of 1,400cc and above, and locally manufactured or assembled double-cabin (4×4) pick-up vehicles.
The decision to raise the sales tax rate is part of the government’s efforts to meet its financial targets and secure an IMF installment of approximately $1.2 billion. Finance Minister Ishaq Dar introduced these tax measures last month through the Finance (Supplementary) Bill 2023, with two earlier measures implemented on February 14, which involved raising the federal excise duty on cigarettes and increasing the general sales tax rate from 17 percent to 18 percent.
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