Progress in taxation reforms

The Chairman of the Central Board of Revenue (CBR), Muhammad Abdullah Yousuf, addressing the members of Karachi Chamber of Commerce and Industry (KCCI) last Friday, made important policy announcements, which included the disclosure that the CBR would shortly remove the existing ban on the import of used automobile parts. Another of his observations related to sales tax and speedier clearance of imported consignments through introduction of automated procedures by March next year.
He also announced that the CBR would soon do away with the SRO culture and asked the business community to send suggestions for an alternative course to the issuance of SROs.
The decision to allow import of used auto parts at rationalised rates of import duty, according to the CBR Chairman, is aimed at counteracting large scale smuggling of auto parts into the country, as the government would prefer fiscal policy measures to combat smuggling instead of maintaining higher rates of duty and absolute ban on certain items.
He cited the policy of reducing import duty on tea and tyres, which has produced positive results in that smuggling of these items has dropped to a minimum level while imports through legal channels have increased by 30 percent in the first quarter of the current financial year.
The policy shift is undoubtedly the right approach to curb smuggling. However, it may be emphasised here that the real stakeholders, namely, the vendors of auto parts should be taken into confidence. The CBR should ascertain their views on the consequences of the new policy.
It is true, as the CBR Chairman pointed out, that there was already abundant supply of used auto parts through smuggling in the local market in the country and therefore legalised imports of this item would not make any difference to the local industry.
Moreover, the local auto parts industry is fairly well developed and has also successfully explored the export market and, as such, legalised import of used auto parts cannot be seen as a threat to local manufacturers. Yet another item of large scale smuggling mentioned by the CBR Chief was the textiles.
According to him, since the government has an agreement with the ICI Pakistan Limited for providing tariff protection to polyester fibre and its raw material PTA, the policy to allow cloth imports at low duty rates would clash with this agreement. He was of the view that a way out would be to buy out the remaining period of protection through mutual agreement.
The government may pay compensation to the company on the basis of its estimated loss during the remaining period of protection. He also invited suggestions from the KCCI members on this issue.
The CBR Chairman, referring to the existing deficiencies in the sales tax procedures, expressed his dissatisfaction over the present audit system which he wanted to streamline in the light of the recent reforms carried out by the South Korean government in their sales tax regime. He felt that the audit system could not be completely done away with but difficulties faced by the taxpayers in this regard should be addressed appropriately.
He also promised the desired measure of improvement in the present sales tax refund procedures. The CBR Chairman's conscious efforts to remove difficulties faced by the business community in different areas of taxation cannot but be seen as a laudable approach to the task of reforming the entire taxation system. His emphasis that these reforms were necessary to attract investment on a rising scale specially in the manufacturing sector, is unquestionably a realistic thinking as opposed to the overwhelming obsession of a taxation bureaucrat with increased tax collection.
The planned improvement in the customs procedures whereby imported consignments would be evaluated at the ports before the arrival of vessels, would be implemented through a new computerised system which would link all the ports and dry ports in the country where uniform rates of duty would be charged.
These efforts would also go a long way in the acceleration of economic activity and reduction in cost of business in Pakistan. The modernisation process would also prove helpful in attracting foreign investment.