Import of raw materials: Government mulls withdrawal of concessionary rates

If approved, the move may result in significant hike in prices of all products.

ISLAMABAD:

In a move that can stir up manufacturers and consumers alike, the federal government is considering the possibility of withdrawing concessionary rates on the import of raw materials being used in over 550 products, ranging from medicines to electronic goods, under a plan to rationalise the  tax regime.

The federal government on Tuesday discussed at length two main Statutory Regulatory Orders, SRO 565 and 567 under which currently manufacturers and commercial importers are allowed to import raw materials at concessionary rates.

The SRO delegates the Parliament’s powers of changing tax rates to the government – the instrument the successive governments abused to give benefits to various influential lobbies.



According to a study, currently 86 per cent customs tariff lines are governed by the SROs while 46 per cent value of total imports is covered by the SROs, making it extremely difficult for any new player to compete with well-entrenched industry players.

The proposals to withdraw tax protections on a majority of the products under both the SROs from July this year were reviewed by a committee, headed by Finance Minister Ishaq Dar and attended by the ministers for planning, development and reform, commerce, textile industry and the chairman of the Board of Investment.

The government is expecting to generate a minimum of Rs40 billion by withdrawing concessionary rates, offered under these two SROs, according to Federal Board of Revenue (FBR) officials. But the committee could not finalise its recommendations as the Engineering Development Board and Ministry of Commerce had their reservations on the FBR’s proposals.

“We are still in the process of finalising recommendations for the prime minister, who will be the authority to take any decision on which the SROs will be withdrawn in the first phase,” said the FBR Chairman Tariq Bajwa. The PM is expected to give his nod to withdraw concession after returning from United Kingdom.

Under the SRO 565, the raw materials for manufacturing of over 150 products can be imported at concessionary tax rates. These items include air conditioners, deep freezers, washing machines, articles of stationery, leather products, ceramics, CNG kits, defense stores and raw material for use of defense forces, diapers, electronic bulbs etc.

The SRO567 mainly offers concessionary rates on raw material being used in over 365 products. These also include concessionary rates for import of fresh fruits, wheat, cane sugar, beet sugar and high speed diesel.

The raw material for poultry sector, iron ores, knitting machines, chemicals, gold, silver, platinum, surgical goods, aircraft engines, ambulances, dumper trucks, agriculture tractors, yarn products, crude palm oil and pharmaceutical sectors are also imported at concessionary rates under the SRO 567.

According to a participant of the meeting, the government will withdraw concessionary rates only for those industries that are already established. He said the infant industries would still be protected.

According to tax experts, the government will have to first rationalise customs tariffs by determining separate rates for raw material, semi-finished, finished and luxury products. They said if the government tried to implement general custom duties, the prices of all products would significantly increase, fueling inflation in the country.

Tax experts said some industries might become more competitive but other might lose their edge in the domestic and international markets.

According to a handout issued by the ministry of finance, Ishaq Dar directed the FBR that while re-evaluating the recommendations of the technical sub-committee, concessions affecting the common man should not be withdrawn and cascading principles of tariff rationalisation be observed in letter and spirit.

He also asked the FBR that its recommendations should not adversely affect new investments in textile, energy and ship making sectors and level playing field is created for all the stakeholders in the economy.

The official note stated that existing concessionary regime could be rationalised, simplified, minimised and deleted in the budget 2014-15.


Published in The Express Tribune, April 23^rd, 2014.