Government plans to hike GST on more luxury items

• Aircraft, boats and ships for pleasure will also be taxed. 
• SUVs/CUVs, 1400cc vehicles added to list. 
• Imported items will be added as well. 

ISLAMABAD: The government has moved a summary for slapping higher general sales tax (GST)  —from 18 to 25% — on more luxury items to fetch an additional Rs11 billion in revenue, The News reported Saturday,  in a bid to convince the International Monetary Fund (IMF) to release $1.1 billion tranche as forex reserves remain dangerously low. 

The summary has been forwarded to the federal cabinet through circulation and awaits its approval for adding more items to the list.

The government has increased the list of items on which it aims to impose a higher GST rate of 25%. These items include aircraft and boats/ships (for pleasure, recreation, and private use) jewelry, and wristwatches. 

The locally manufactured motor vehicles that are proposed to be taxed at a higher rate of 25% include only SUVs and CUVs, vehicles of engine capacity 1400cc and above, and quad-cab pickup 4x4 trucks.

However, categories of vehicles like locally manufactured EVs (Electric Vehicles) up to a battery capacity of 50 Kwh, electric three-wheelers, e-bikes, and hybrid electric vehicles (HEVs) of up to 2500cc have been excluded from the list and will continue to be charged at the reduced rate as provided under Eighth Schedule to the Sales Tax Act, 1990.

Furthermore, all commercial vehicles, namely regular-cab (two-door) pickup trucks and passenger transport vehicles, are also excluded from the list.

It is proposed that the federal government may enhance the sales tax rate on luxury goods (currently liable to a standard rate of sales tax) from 18 to 25% in the exercise of its powers under clause (b) of sub-section (2) read with first proviso to clause (a) of sub-section (2) of section 3 of the Sales Tax Act, 1990. 

The revenue impact of this taxation measure is estimated at Rs7 billion on imported luxury goods and Rs4 billion on locally manufactured luxury vehicles.

The imported items selected for the enhanced sales tax rate of 25% are the same goods that have been determined by the cabinet as "luxury goods" and were banned from import in May 2022, through SRO No. 598(I)/2022 on May 19, 2022. 

These items included the import of aerated water and juices, auto completely built units (CBU), sanitary and bathroom wares, carpets (excluding Afghanistan), chandeliers and lighting devices or equipment, chocolates, cigarettes, confectionary items, cornflakes, cosmetics, shaving items, tissue papers, crockery, decoration/ornamental devices, dog and cat food, doors and window frames, fish, footwear, fruits and dry fruits, furniture, homes appliances (CBU), ice cream, jams, jellies and preserved fruits, luxury leather jackets and apparels, mattress, and sleeping bags, frozen or processed meat, mobile phone (CBU), musical instruments, pasta, arms and ammunition, shampoos, sunglasses, tomato ketchup and sauces, traveling bags, and suitcases.

In view of the urgency, it is also proposed that Prime Minister Shehbaz Sharif may condone the requirement of submission of the summary to the cabinet committee for Disposal of Legislative Cases (CCLC) and allow submission of the summary to the federal cabinet through circulation.