If the Federal Finance Minister, Ishaq Dar, is to be believed, the introduction of additional taxes worth Rs40 billion on the "imported items" will not affect the common man. Even if that is so, it remains to be seen if the trickledown effect of the new taxes weighs down heavy on the local items of everyday use.

The government’s "corrective measures" aim to recover the shortfall of 40billion rupees of revenue. The new taxes come at a time of rising circular debt and revenue shortfall.

The 350 items on which regulatory duty has been imposed are only used by the rich, according to the minister. The introduction of additional taxes would also help in saving foreign exchange.

The mini-budget, as it has been termed, imposes 5-10 per cent regulatory duty on import of 61 items, increases duty by 5 per cent on another 289 items and levies 1 per cent additional customs duty on thousands of other items.

As it is often the case, the decision was taken to qualify for another IMF tranche of $502 billion. Hence, the announcement came at a news conference after a meeting of the Economic Coordination Committee of the cabinet to comply with a pre-condition of the IMF on the last day of its deadline.

While the government would generate Rs21bn through 1 per cent additional duty on all items in the 5th schedule of the Customs Act, currently being charged at up to 20 per cent customs duty, 9 categories, having impact on the common man, would remain exempt from 1 per cent additional duty, as is claimed by the government.

The list of exempt items includes all non-dutiable imports, agriculture machinery, essential raw materials and inputs for textile, agriculture, pharmaceutical and aviation sectors, items like vegetables and industrial items of coalmining and renewable energy given protection under the 5th schedule.

How do tax experts and economists react to the new taxes? Dr Akmal Hussain, a senior economist, questions the imposition of new taxes, "How can the government do it like this just six months after the passage of the budget from the parliament? That is to say, we cannot have taxation without representation. Budget is a sacrosanct document. Since it is debated in the parliament, it is a trust between the parliament and the people."

Hussain says the new taxes throw ample light on the government’s inefficiency, "It means they got all their calculations wrong about revenue generation. And this is despite the fact that they have a huge machinery of tax officials and yet their calculations went wrong."

He believes this step does not reflect well on the government, "The taxes have been imposed on the insistence of the IMF and the World Bank because the government has missed the revenue targets and they want to catch up with the revenue projections to get the next tranche. So, it’s a desperate move."

"Yes, they can issue SROs, which is the legal way but it is against the spirit of democracy and democratic culture. The government does not have the moral authority to levy these taxes." He believes, "The Ministry of Finance needs basic changes and capacity building."

There is another opinion, too. Kaiser Bengali, a prominent economist, however, does not see any major fault with the imposition of new taxes. "I think the new taxes have been imposed mostly on luxury items but it is debatable because one thing that is luxury for you may not be a luxury item for me. May be, there are a couple of things which do not fall in the category of luxury items but overall taxes cover luxury items."

Bengali believes, "It is a good step that the import duty has been increased. It was even lower than the WTO requirement."

On the criticism that taxes have been imposed on the insistence of the IMF and World Bank, Bengali says "not everything that the IMF or the World Bank proposes for Pakistan is bad for our country. If, for instance, our budget deficit is low due to the IMF and the World Bank directions, it is good for our economy. Overall, I don’t see any bad things in the taxes."

Dr Ikramul Haq, expert on taxation and a tax lawyer, does not agree with Bengali. He proposes that "The finance minister should have tackled undocumented economy and monstrous tax gap rather than increasing sales tax rate on some items and imposing regulatory duty on over 300 imported items for satisfying the IMF and to show that "tangible measures" have been taken to meet revenue shortfall of Rs40 billion."

Haq points to another important aspect. "Not only these taxes are ill-directed, there is no surety that increases in tax rates will also increase tax revenues. The imposition of regulatory duty may not help to recover the shortfall in revenues to the tune of Rs40 billion or even half of that amount in the next 7 months."

Haq claims, "A closer look at the list of 350 items shows that more than 95 per cent of goods subjected to extra regulatory duty are not luxury, but essential items -- goods include brassieres, infant diapers, and all types of imported food items."

He explains why the imported items are not luxury. "Many of these items are imported because these are cheaper than locally produced goods amid the rising cost of doing business. Certainly, cheap children garments imported from Thailand and China are not luxury items for a middle class family as these are available at much lower price than locally-manufactured clothes."

He answers a point raised above in this article by Dr Akmal Hussain, "In fact, the PML-N government was afraid of going to the Parliament to impose new taxes without introducing a new bill. And now they are facing a tough opposition for illogical taxes. Opposition is right in saying that such erratic taxes will burden the middle class more than the affluent."

He suggests an alternative plan. "Rs40 billion revenue target could have been collected easily by just levying 1 per cent super tax on the colossal incomes of banks and oil companies."