Cabinet extends duty for 40 days

Additional duty on consumer goods will stay till Mar-end to discourage imports

ISLAMABAD:

The federal cabinet has further extended the timeframe for up to 100% regulatory duty on a range of consumer goods for 40 days to discourage their imports, a move that has not helped as much as the central bank’s decision to disallow the provision of foreign currency for imports.

The move came amid a review by the State Bank of Pakistan (SBP) of the existing restrictive import regime that was in violation of the commitments made to the International Monetary Fund (IMF).

The decision to further extend the time period for additional duties beyond the initially approved limit of six months highlights the inconsistency in policies that discourages investors.

Through the circulation of a summary, the federal cabinet approved extension in the additional regulatory duty and customs duty on mobile phones, new and used cars, home appliances, meat, fish, fruits, vegetables, footwear, furniture and musical instruments till March 31.

According to the cabinet’s August 2022 decision, these higher rates had to come to an end on February 21. Additional customs duty of up to 28% on cars has also been extended till the end of March.

Earlier, the plan was that the government would not further extend the duties, as the measure had become less effective due to the SBP’s decision of disallowing the opening of letters of credit (LCs) for imports or the availability of foreign currency.

However, the Federal Board of Revenue (FBR) requested the Tariff Policy Board at the eleventh hour for an extension, which held an emergency meeting on Saturday and agreed on a 40-day extension.

Although the FBR told the Tariff Policy Board that the regulatory duty had helped contain imports of goods by 50%, the real reason was the SBP’s guidelines to the commercial banks.

Over the past six months, mostly those goods were cleared that had already reached ports or for which LCs had been established but got stuck due to a previous ban on imports. The government had lifted the ban in August last year and replaced it with higher duties.

The FBR earned about Rs15 billion in revenues on those goods, mostly on the import of luxury vehicles that sneaked through the system during such pressing times.

The IMF is against any restrictions on imports, including the central bank’s guidelines to the commercial banks to provide foreign currency to only half a dozen sectors.

The central bank is going to withdraw these instructions, possibly this week, in a bid to address one of the issues that were considered irritants during the Pakistan-IMF review talks. The restrictions imposed on imports caused more pressure on supplies and contributed to an increase in prices.

The IMF has advised the SBP to remove import restrictions and withdraw its guidelines issued to the commercial banks. The duty had been imposed in the range of 10% to 100%, but it impacted far less than $1 billion worth of imports in the last fiscal year.

Due to the central bank’s restrictions, the imports during July-January of the current fiscal year dropped by 21% to $33.5 billion, showed the data released by the SBP. As a result, the current account deficit shrank 67% to $3.8 billion in the first seven months of FY23.

But the IMF sees this improvement as unsustainable, believing that after the lifting of these restrictions, the imports will bounce back. It is of the view that the dollar price should determine the import level, instead of any administrative curbs.

The federal cabinet extended the duties on about 790 tariff lines. The government has targeted 49 tariff lines of vehicles and has imposed 10% to 100% regulatory duty and 7% to 28% additional customs duty on cars.

Up to 1,000cc new and old cars that were earlier exempted from the regulatory duty, have now been targeted with 100% duty, bringing total import taxes to 150%.

Similarly, the vehicles that were earlier subject to 77% import taxes are now being cleared at 169% taxes. The government has imposed 85% more regulatory duty and 7% additional customs duty.

The most expensive cars, both sports and high-engine capacity, have not been heavily taxed. These categories of vehicles were earlier subject to 197% of total duties at the import stage. Now, the government has imposed 28% additional customs duty and only 10% additional regulatory duty.

The regulatory duty on chocolates and washroom fittings is 49%. The duty on a mobile phone of more than $500 is Rs44,000 plus up to 25% sales tax of the value of the phone.

Published in The Express Tribune, February 21^st, 2023.

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