The Finance (Supplementary) Bill 2021 calls for a 17% sales tax on over 150 items, to raise nearly PKR 350 billion in government revenue. The imposition of new taxes isn’t much of a surprise, since it was a key condition for the resumption of IMF assistance. However, some of the fields where sales tax is being levied or raised will be particularly detrimental to ordinary citizens.
Seeds, tools and chemicals in the agriculture sector will now face a 17% GST, while a 10% tax will be imposed on flour mills, both of which are likely to hurt consumers in the form of higher prices for basic staples and vegetables. Imported laptops and phones will be subject to a 5% and 17% levy respectively, which means two crucial components of the global ICT economy just got a lot more expensive. The tax on laptops will particularly hurt, as their prices have already escalated in recent years due to currency depreciation, compounded by a dearth of locally manufactured laptops. Poultry, imported infant formula, and dairy products are likely to get more expensive too, not promising for a country with already poor nutritional outcomes.
KSE-100 rose this week, as the mini-budget and SBP autonomy bill virtually confirmed the revival of IMF assistance. PKR appreciated slightly this week, due to suspected intervention by the State Bank in the currency market. Local gold prices rose marginally this week.
The annual change in Sensitive Price Index rose to 20.05% vs. 19.83% last week. The poorest of the country (Q1) were disproportionately affected with a change of 21.92% vs. 20.10% for Q5. On a weekly basis, prices fell for all quintiles by 0.50%.
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