The government on Wednesday approved payment of Rs50 billion to partially clear dues of Chinese power producers and allowed imposition of up to 50% regulatory duty on all types of imported vehicles, leaving consumers at the mercy of local assemblers.
The Economic Coordination Committee (ECC) of the cabinet that took these decisions also approved a subsidy of Rs40 billion for the rich industrial consumers by subsidising the imported re-gasified liquefied natural gas (RLNG).
The Pakistan Tehreek-e-Insaf (PTI) government is taxing the poor and middle class to subsidise the rich. In the mini-budget, it imposed Rs375 billion worth of taxes but exempted Real Estate Investment Trusts from 15% income tax.
The ECC approved the imposition of 10% regulatory duty on import of completely built units (CBUs) of electric vehicles battery packs of over 50 KWH excluding commercial buses and trucks.
Giving in to the pressure from local car assemblers, the government has started discouraging the use of electric vehicles while the rest of the world is doing the opposite. Last week, the government proposed to slap 17% sales tax on electric vehicles.
The ECC also approved an increase in regulatory duty from 15% to 50% on import of all types of hybrid vehicles in CBU condition having engine capacity of over 1,500cc but not more than 1,800cc.
There is an increase of 233% in the regulatory duty rates. All other taxes are in addition to this.
The ECC approved an increase in regulatory duty from 15% to 50% on import of vehicles having spark/ compression ignition engine (conventional engines) in CBU condition exceeding 850cc engine capacity but not more than 1,800cc.
The government has said that regulatory duties have been imposed to control the import bill, which has been on the rise partially because of import of cars. The country imported 26,000 cars during the first five and a half months of current fiscal year.
However, the decision to increase taxes will reverse the relief given by Prime Minister Imran Khan to the automobile sector in June 2021.
These measures will leave people at the mercy of local car assemblers, who are already giving six to eight months delivery time to the consumers and facilitating the charging of heavy premium, known as own money, on early delivery of cars.
The own money was the difference between demand and supply of cars and supply would not increase despite imposition of taxes, said Senator Musaddiq Malik of the PML-N.
In one year, the FBR collected Rs730 million in tax on own money and now the rates have doubled after the selling of cars on own money could not be discouraged despite imposing taxes at the registration stage, said FBR Chairman Dr Mohammad Ashfaq.
The Ministry of Commerce had opposed the imposition of taxes on electric vehicles but the Ministry of Industries, which was protecting car assemblers over consumers, advocated discouraging imports of electric cars.
The commerce secretary told a gathering last month that increase in taxes on electric vehicles could jeopardise Pakistan’s relations with the European Union and the United States. In the budget, certain incentives were given on import of electric vehicles in CBU condition and the reversal of that policy at this stage was not a viable policy intervention, the commerce secretary told the Tariff Policy Board.
Through the mini-budget, the government also proposed to significantly increase the federal excise duty on locally produced and imported cars. On imported cars of 1,001-1,799cc engines, the federal excise duty has been doubled from 5% to 10%, on 1,800-3,000cc engines, the rate has been increased from 25% to 30% and for engines of capacity 3,001cc and above, it has been increased from 30% to 40%.
Likewise, the FED has been increased on local motor cars of 1,001-2,000cc engines from 2.5% to 5% and for engines of capacity 2,001cc and above, it has been increased from 5% to 10%.
The ECC on Wednesday approved to impose 10% regulatory duty on textile material polypropylene in order to address tariff anomaly at the request of industry and allowed to remove 5% regulatory duty on varnishes as these are used in making of furniture. The ECC imposed 20% regulatory duty in lieu of anti-dumping duty on the import of soda ash for a period of six months.
Chinese payments
The ECC approved Rs50 billion supplementary budget to partially clear the dues of Chinese independent power producers (IPPs) set up under the China-Pakistan Economic Corridor. The total outstanding amount is over Rs250 billion, which the government has failed to clear due to deterioration in the financial health of the power sector.
Under the 2015 energy framework agreement, Pakistan is contractually bound to make timely payments to the Chinese power plants that were set up under the CPEC framework. However, the Pakistani government has been violating this agreement since 2018 when the Chinese power plants started producing electricity.
So far, 10 energy projects worth $10 billion have been completed and four schemes costing $4.7 billion are under implementation.
Around four months ago, Pakistan had again assured China to disburse dues worth $1.4 billion or Rs250 billion to the Chinese power plants. It had also committed to open a revolving fund that would have deposits equal to 21% of the power generation cost. On average, about Rs5 billion to Rs6 billion every month is paid less to Chinese power producers against the billed amount, said a finance ministry official.
Urea import
The ECC allowed the import of 50,000 tons of urea on a government-to-government basis from China on an immediate basis subject to clearance from the Pakistan Standard and Quality Control Authority. The TCP was also tasked to negotiate the price with Chinese supplier authorised by the govt of China for further import of urea.
The farmers are facing urea shortage but the government has so far remained in a state of denial.
Published in The Express Tribune, January 6th, 2022.
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