Implications of Finance (Supplementary) Bill 2021; Get to know which commodities are going to get costlier!

The Finance (Supplementary) bill 2021 is aimed at meeting the IMF’s conditions on getting clearance of Pakistan’s sixth review of $6Bn extended loan for clearing the way for payment of $1Bn loan portion.     

Several amendments have been proposed in the bill relating to Income Tax, Sales Tax, Custom Duties and Federal Excise Duty. The proposed changes are expected to net a total of Rs. 343 Billion in additional tax collections, mainly in the form of withdrawal of sales tax exemptions.

Here is the list of commodities which are going to be expensive:

• Mobile calls and imported mobiles.
• Imported edibles
• Automobiles (imported, local)
• Medicines
• Miscellaneous

Given below is a brief description of each of the proposed amendments that is expected to make each of the following commodities more expensive.

Mobile calls and imported mobiles:

Withholding tax, also known as “Advance Adjustable Tax” on mobile phone calls is proposed to be increased from 10% to 15%.

Furthermore, while previously imported CBU cellular mobile phones were chargeable to sales tax at fixed rates ranging from Rs. 1740 to Rs. 9,270 on cellular phones ranging in values from USD 200 to exceeding USD 500, these have now been proposed to be subject to sales tax at 17% ad valorem.

All of the above will result in increasing prices for mobile phone users, both in the form of mobile phone purchases and usage of the call time and data.

Automobiles:

(Locally Manufactured Vehicle)

Cars ranging between engine capacity of 1001cc-2000cc, the federal excise duty on those vehicles will be increased from 2.5% to 5%. Whereas those cars having engine capacity beyond 2000cc, the federal excise duty on those cars will be increased from 5% to 10%.    

Locally assembled cars with an engine capacity above 850cc, the sales tax on those cars will be increased from 12.5% to 17%. 

Locally assembled double cabin vehicles, the federal excise duty on those vehicles will be increased from 7.5% to 10%.  

(Imported Vehicle)

Imported cars ranging between the engine capacity of 1001cc-1799cc, the federal excise duty will be increased from 5% to 10% on them.

Also Imported cars ranging between the engine capacity of 1799cc-3000cc, the federal excise duty will be increased from 25% to 30% on them.

Further, imported cars beyond the engine capacity of 3000cc, the federal excise duty will be increased from 30% to 40% on them.

The duty on imported double cabin vehicles will be increased from 25% to 30%, also the duty on the hybrid electric vehicles will be increased from 8.5% to 12%.  

(Withholding Tax)

Additionally, the bill also includes the propositions of increasing the withholding tax which is also known as (advance tax) so cars ranging up to 1001cc the advance tax will be increased from 50,000 rupees to 100,000 rupees.

Following on, the cars which are ranging between 1001cc to 2000cc, the advance tax will be increased from 100,000 rupees to 200,000 rupees.

While completing this clause, the cars which are ranging above 2000cc, the advance tax will be increased from 200,000 rupees to 400,000 rupees.

All the above proposed amendments shall apply only in case of motor vehicles sold prior to their registration after purchase from the manufacturer.

Imported Edibles:

17% sales tax has been proposed to be imposed on imported items which were once exempted from sales tax. Those products include luxury items, including imported live animals, steak meat, fish, vegetables, high-end bakery items, branded cheese and sausages.  

It has also been proposed in the supplementary finance bill 2021 that 17% sales tax will also be imposed upon imported raw materials that would be used in the making of infant foods.  

Although, there is rising fear that the basic food items inclusive of poultry and beef may also get expensive following the outlook of the raising sales tax on imported machines that would be harnessed in the poultry sector. The imported poultry machines will bear the sales tax from 10% to 17% also the local poultry and cattle feed will bear 7% to 17% sales tax.   

The brand packaged dairy items will also come under the radar of the increased sales tax rates and their sales tax rates will be raised from 10% to 17%.

Medicines:

In the propositions of the finance amendment bill 2021, the tax exemptions given to the pharmaceuticals industry worth 160 billion rupees have been withdrawn by the government. In the outlook of this development medicines will become costlier as 17% of the sales tax will also be imposed on the imported raw materials that would be used in the production of the pharmaceutical’s ingredients.  

 
Miscellaneous Items:

5% of the sales tax will be imposed on the imported laptops, 17% sales tax on imported magazines and journals.   

Other than this, sewing machines, matchboxes, iodized salt, red chili and contraceptives will also come into hands with the imposition of 17% sales tax.

All the above proposed amendments are expected to lead to increased inflation further adding to the difficulties being faced by the citizens of Pakistan.