Govt considering further increasing taxes on Luxury Goods

September 6, 2023

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The government has initiated working once again on imposing taxes on luxury items to control revenue streams. As per market sources, various proposals have been presented to Finance Minister Dr. Shamshad Akhtar to address the revenue shortfall. It should be noted that the government is contemplating the tax increase due to a 21% rise in revenues in August, prompting a review of tariffs.

Customs authorities have advised the government that there would be no significant benefit from increasing taxes on luxury imports, as past experience has shown that such tax increases have led to smuggling via the Afghan border. According to data from the Statistics Division, revenue collections in August reached $4.5 billion, which is 21% higher compared to July.

Sources have revealed that the Federal Board of Revenue (FBR) has expressed opposition to increasing duties, citing that duties have already reached excessive levels. The Ministry of Commerce had proposed a 25% increase in sales tax on luxury items, which the FBR has opposed, as the World Trade Organization (WTO) has already opposed tax hikes on non-domestic manufacturers’ products.

It is worth mentioning that a similar proposal was made to the finance minister a week ago, suggesting that banks should not open Letters of Credit (LCs) for luxury items and LCs should only be allowed for essential goods. The Finance Ministry is also discussing smuggling and misuse of Gift and Transfer of Residence (GTR) schemes, which were utilized for the import of used cars.