Pakistan considers mini-budget with new levies on luxury goods for flood recovery: report

The Pakistani government is considering a mini-budget, proposing new levies to raise funds for flood recovery. The proposed levies include additional taxes on luxury items like cars, electronic goods, and cigarettes, with the aim to generate at least Rs50 billion to support flood-affected areas, The Express Tribune reported, citing sources.

According to the report, the discussions took place at a meeting chaired by Finance Minister Muhammad Aurangzeb, as the government assesses its revenue shortfall due to the devastating floods that have hit the country. 

The development came as the FBR is already facing a Rs40 billion shortfall in tax collection for the July-August period, which is expected to rise significantly by the end of September, putting pressure on fiscal targets set under Pakistan’s agreement with the International Monetary Fund (IMF).

The proposed flood levy will apply to various imported goods, including a 5% tax on electronics beyond a specific price threshold. There is also a suggestion to impose a Rs50 levy on every packet of cigarettes, irrespective of brand, and additional levies on cars with engines above 1,800cc. The latter would further increase the tax burden on vehicles, which are already heavily taxed, ranging from 30% to 61% of their total price.

The government is also considering levying taxes on goods previously subject to reduced regulatory duties as part of the IMF-guided trade liberalization plan. However, there are concerns that such levies could run counter to the trade liberalization measures and may face resistance from the IMF in upcoming review talks.

The levy, which will not be shared with the provinces but will instead go into federal revenue, aims to mitigate the pressure on the federal budget caused by the flood-related damages and revenue shortfalls. This follows the Finance Ministry’s assessment that despite a growth in manufacturing, the tax collection has been under target.

While the government works to raise funds, a meeting of the prime minister’s committee on flood damages was held under the chairmanship of Federal Minister for Planning Ahsan Iqbal. 

The committee reviewed the damage assessment of the 2025 floods and agreed that a more comprehensive assessment would be conducted once floodwaters receded. A preliminary assessment is expected to be completed within ten days, with coordinated efforts from provincial governments and international organizations.