ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government suffered on Tuesday its first defeat by a Senate panel that rejected changes to customs duty rates for a few industries after the authorities could not defend budgetary proposals in light of the PTI’s economic vision.
The Senate Standing Committee on Finance rejected the reduction in customs duty rates for about three-dozen raw materials with a thin majority of 3-2. Senators belonging to the PML-N and National Party voted against the reduction in tariffs.
Some of these raw materials are manufactured locally and were earlier subjected to maximum tariffs to provide protection for domestic industries.
Nevertheless, the panel’s decision cannot stop the government from making these changes as the upper house of parliament does not have the authority to vote on the Finance Bill. Still, it was the first moral defeat of the government that was unable to defend its major budget proposal. In the case of Finance Bill, the Senate can only give recommendations, which the National Assembly can either accept or reject.
The PTI government has proposed lower tariffs on 34 types of raw material being used by export-oriented industries and domestic market players. In his policy statement, Minister of State for Revenue Hammad Azhar said the mini-budget was proposed to enhance exports in a bid to lessen pressure on the external sector and raise revenues to avoid bankruptcy.
The cost of reduction in customs duty rates is over Rs4 billion, which both the Federal Board of Revenue (FBR) and the Ministry of Commerce could not defend on the parameters of increasing exports and avoiding bankruptcy.
PML-N’s duo Senator Haroon Akhtar Khan and Senator Musadik Malik inquired about the impact of the proposal on revenue and also the projected increase in exports due to these relaxations. The FBR and commerce ministry could not share their analysis with the senators.
“We can only provide details of revenue implications,” said National Tariff Commission member Robina Ather. In the beginning, she claimed that the ministry had performed the cost-benefit analysis before taking the decision to lower the protection.
“The commerce ministry made a false claim before the Senate that it had done the cost-benefit analysis before lowering tariffs on these items,” accused Malik.
The government also did not share the list of 612 tariff lines with the Senate panel on which it imposed new regulatory duty in the budget.
The revenue minister responded by saying that the federal government had the right to impose duties without the consent of parliament. The standing committee also suggested to the government to partially withdraw the increase in income tax rates for the salaried and business class.
It recommended that the maximum income tax rate for salaried persons should be reduced from 25% to 20% and for the business community from 29% to 25%.
The PML-N government had drastically reduced the income tax rates just two months before general elections, giving a benefit of Rs90 billion to the salaried and business class.
However in the mini-budget, the PTI government raised the income tax rates for people earning more than Rs2.5 million annually from 15% to 25% to recoup Rs26 billion out of the Rs90-billion projected loss. These rates are still lower than the fiscal year 2017-18 threshold.
The FBR’s Inland Revenue Policy member opposed the reduction in income tax rates, saying it would bring down the additional tax collection projection to half.
The Senate panel also opposed the government’s plan to give effect to new income tax rates from July this year. Committee Chairman Senator Farooq Naek said the government could not make changes retrospectively as taxpayers could challenge them in courts. The matter will be decided on Wednesday (today).
Published in The Express Tribune, September 26th, 2018.