Govt rejects hefty duties on imports

Says move will undermine negotiations with EU for GSP Plus scheme

ISLAMABAD:

The government has rejected a proposal to impose up to 100% regulatory duties on luxury imports and used cars due to objections raised by members of the European Union and the negligible impact of higher duties on curbing imports.

The proposals to impose regulatory duties on approximately 125 imported goods were presented to the Tariff Policy Board this week. The meeting was convened on the instructions of interim Prime Minister Anwaarul Haq Kakar, who aimed to discourage these imports due to rising import bills.

Sources informed The Express Tribune that the Tariff Policy Board did not endorse the recommendations and deferred the matter.

Six months ago, Pakistan had completely abolished regulatory duties on the import of used cars up to 1,800cc. It had also significantly reduced duty rates for new cars, mobile phones, and other goods.

The sources revealed that the authorities proposed targeting only imported goods that could significantly save foreign exchange reserves. For goods with low duty rates, it was suggested to double the rates, and for those with higher rates, an increase of 30% to 50% was proposed.

The proposal aimed to tax about 104 goods that were previously subject to higher duties, along with a list of 20 new items for the imposition of regulatory duties. Tax authorities estimated over a $400 million reduction in the import bill due to these changes in duty rates.

However, the board did not endorse the proposal, fearing it could undermine Pakistan’s negotiations with the European Union for the next phase of the Generalised System of Preference plus, known as the GSP-plus scheme. Under this scheme, Pakistan exports goods to the EU duty-free, and additional duties on items imported from the continent have previously raised objections from the EU.

These additional duties historically have not been effective in reducing imports but were used to generate additional revenues. Last fiscal year, the State Bank of Pakistan’s decision to restrict the opening of Letters of Credit (LCs) and available of foreign currency for imports significantly reduced the import bill during the last fiscal year.

As part of a commitment to the International Monetary Fund (IMF), the central bank abolished all restrictions on imports in June, including the priority list for opening LCs.

In August, the import bill amounted to $4.5 billion, an increase of $784 million or 21% over July, according to the Pakistan Bureau of Statistics (PBS).

During the meeting, it was discussed that taxing goods like imported yogurt would not significantly reduce the import bill, as its annual imports were only worth around $400,000.

design: Ibrahim Yahya

However, the Federal Board of Revenue (FBR) argued that duties should only be imposed on items with significant imports.

Statutory Regulatory Orders (SRO) 1571, which governed the increased rates of regulatory and additional custom duties, expired on March 31st, after the chairman of the Tariff Policy Board refused to extend their validity period.

As a result, consumer items, including new and used cars, high-tech mobile phones, home appliances, meat, fish, fruits, vegetables, footwear, furniture, musical instruments, dog and cat food, and ice cream, had become comparatively cheaper.

There was also a proposal to impose 100% regulatory duties on the imports of used cars in the category of 1300 cc to 1,800 cc, but the tariff policy board did not endorse the recommendation.

Consumers of old used cars up to the 1800 cc category received significant relief six months ago after 100% regulatory duties were abolished.

People do not have a choice but to import used cars due to low local production and poor quality of locally assembled cars. However, the current economic crisis has affected car consumers significantly, offsetting some of the benefits of reduced rates six months ago due to currency devaluation.

On May 19, the government had imposed a ban on 33 categories of goods covering 789 tariff lines and imposed quota restrictions on the import of cars, cellular phones, and home appliances. Subsequently, it lifted the ban and imposed up to 100% regulatory duty and up to 35% additional custom duty.

During the last wave of higher regulatory duties, the government had managed to reduce the import bill by only $400 million, equal to 5% of last year’s import bill. However, the FBR sustained a loss of Rs58 billion in revenue during this period despite higher duties due to fewer imports of goods.

The Tariff Policy Board also did not endorse a proposal to reduce duties on imports of goods from Afghanistan, suggesting that any such step should only be taken on a reciprocal basis, and Pakistan should not act unilaterally.

Published in The Express Tribune, September 22^nd, 2023.

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