KARACHI, Pakistan (Reuters) -Pakistan laid a supplementary finance bill before parliament on Wednesday, proposing to raise the goods and services tax (GST)to 18% from 17% to help raise 170 billion rupees ($639 million) in extra revenue during the fiscal year ending July.
The country has held talks with the International Monetary Fund (IMF) for the release of critical bailout funds, and with roughly enough reserves to meet only three weeks of imports, it is looking to increase revenue despite multi-decade high inflation of 27%.
Fahad Rauf, head of research at Ismail Iqbal Securities, a local brokerage, said the only silver lining of the finance bill was that it would take Pakistan a step closer to the IMF programme resumption.
The bill set before Parliament by Finance Minister Ishaq Dar proposed the exemption from the GST rise of "daily use" items such as wheat, rice, milk and meat, to reduce the impact of the budget on those most vulnerable to rising inflation.
"It's unfortunate that we only know how to increase indirect taxation, and burden the existing taxpayers," Rauf said. "On the other hand, there is no income tax collection from retailers, real estate, and agriculture segments."
Rauf noted that raising the GST would be inflationary even with the exemptions. A senior economist with Moody's (NYSE:MCO) Analytics told Reuters on Wednesday that inflation in Pakistan could average 33% in the first half of 2023 before trending lower.
The finance bill also proposed to raise taxes on luxury items to 25%, while hikes in taxes on first- and business-class air travel, cigarettes and sugary drinks were also proposed.
The government has also proposed an adjustable withholding tax on marriage halls and events at 10%.
To offset the inflationary impact of the budget, the government proposed that handouts under the Benazir Income Support Programme (BISP) - a welfare scheme - to be increased to a total of 400 billion rupees from 360 billion.
The duty on cement was also brought back to pre-COVID levels of 2 rupees per kilogram.
The government is looking to pass the bill from parliament as soon as possible, and even discussed bringing it into force directly through a Presidential Ordinance.
However, President Arif Alvi, a member of the party of opposition leader Imran Khan, turned down the request on Tuesday, forcing the government to take the route of parliament which it called a rushed session of.
Khan told journalists in Lahore that his party will oppose the bill.
"PTI senators would oppose this bill because it is anti-people," he said, adding "I have directed my party senators not to leave any stone unturned while opposing it."
Khan's party does not have the numbers to stop the bill from being passed, but will ratchet up political pressure on the government that is already in a rush to unlock the delayed tranche from the IMF.
($1 = 266.1900 Pakistani rupees)