After several delays, the Cabinet finally approved the mini budget, aiming to raise Rs343 billion as a prerequisite for the revival of the IMF programme. The mini budget clearly represents the governments’ ideology of promoting local production and reducing foreign imports by subjecting them to high taxes.

The greatest impact is seen on the auto sector. Here, the GST is to be increased on locally manufactured cars above 800cc, rising from 12.5% to 17%, affecting the sector negatively. Imported and locally assembled vehicles above 1000cc are subjected to a higher FED. Moreover, electrical vehicles will now be subjected to a 12% higher GST, changing from 5% to 17%.  All locally assembled passenger vehicles exceeding 1001cc will also face an increase of double the previous FED. Additionally, to curb the ‘Own Money’, the government has proposed an advance tax on vehicle registration of PKR100,000 on cars less than 1000cc, PKR200,000 on cars from 1001cc to 2000cc and PKR400,000 on cars more than 2001cc. These duties will eventually increase the cost of owning a car for the consumer.

Company-wise, INDU and HCAR are most impacted by the proposed increase in duties, since all their cars are above 1,000cc. Furthermore, an increase in FED and GST would result in higher vehicle prices. Thus, affecting volumetric sales. The Hilux and Fortuner may see the highest price increases, as FED on cars above 2,000cc increased twofold. On the flip side, this proposal has no material impact on PSMC as most of its vehicles are under 1,000cc, where no FED is levied, a report by Insight Securities said.

Besides, new taxes imposed can be seen in the IT sector, with all IT and Tech services now being subjected to 5% GST as compared to the previous 0%. This would also include the 5% tax now being added to any imported laptops, computers and tech devices.  There is also a surge in taxes imposed on all telephonic calls and sim recharges. Imported phones and machinery for mobile manufacturing worth greater than $200 are also now subject to 17% GST. 5% taxes are also to be implemented on different services- health clubs, laundries, salons and travel agencies.

New taxes can also be seen on local and imported infant formula milk, which is currently being subjected to no GST but is proposed to also be subjected to 17% GST. However, this will likely be passed on to the consumer and therefore not impact the sector.

The jewellery sector faces an increment of 16% on GST, now standing at 17% compared to the previous 1%.

All dairy items are now also subjected to an inflated 17% GST, as compared to the previous 10%. Imported livestock, poultry machinery and branded dairy products all face the brunt of the increment and therefore increase the cost of production for related items.

Seeds and raw cotton also face a high GST standing at 17% which could prove to be a negative amendment for textile exporters.

However, refineries face a positive amendment as the government has proposed a zero-rating own petroleum crude oil from the current 17%. This will decrease the cash requirement for the local refineries.

It is clear that the amendments in the mini-budget will increase inflation, but for the resumption of the IMF program, stabilising the PKR and controlling the increasing CAD- these measures could prove to be a necessity as this bill would help the government to increase their revenues and provide them with much needed fiscal space.

If we see a sectoral wise impact then the automobile sector would be impacted negatively along with other sectors like food, pharma and etc. However, if we observe this scenario from a macro point of view, these measures will increase tax revenues which currently stand at Rs4.8tn for 11MCY21, hence the overall impact would be minor.

The story was filed by the News Desk.
The Desk can be reached at info@thecorrespondent.com.pk.

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