LAHORE: About 50 percent revenue in Pakistan is collected from levies at the import stage as import tariffs are considered to create fewer distortions compared to the Value Added Tax (VAT) type taxes due to the prevalence of huge informality of businesses, said customs sources.
They said Pakistan has a large informal sector which is hard to tax. Similarly, they added, taxing especially small and medium enterprises may have negative implications for employment and economic growth.
According to the sources, the capacity of tax machinery is low which, coupled with weak political will, makes it difficult to tap the potential of tax revenue especially from sales tax and income tax. They said the World Trade Organization (WTO) also recognizes the significance of customs duty as a legitimate source of government revenues in developing countries like Pakistan. The sources said that a change in tariff rates and additional levies are two important tools used to increase revenue at import stage in Pakistan. While quoting the example of budget 2014-15, they said, the tariff slab of 30 percent (ceiling) was brought down to 25 percent but the floor was raised from 0 percent to 1 percent to compensate for the revenue impact resulting from a reduction in ceiling.
In the budget 2015-2016, they said, the maximum tariff slab was reduced from 25 percent to 20 percent but the floor was raised from 1 percent to 2 percent. In the budget of Fiscal Year 2016-17, the tariff slabs of 2 percent and 5 percent were merged into a new slab of 3 percent and the rates of slabs of 10 percent and 15 percent were respectively enhanced to 11 percent and 16 percent.
In the budget for the FY 2019-20, according to the sources, a slab of 0 percent was again introduced and 1639 tariff lines were subjected to this new slab of zero percent but rates of additional customs duty were enhanced and scope and coverage of regulatory duty increased. The Additional Customs Duty (ACD) and RD constituted around 15 percent part of the total CD collection in 2015-16 which increased to 26 percent in 2018-19, they added.
The sources said despite the fact that input goods are either exempt from import tariffs or attract the lowest slab of customs duty. Exports of Pakistan have almost stagnated and the industrial productivity is low and the competitiveness of Pakistani firms is eroding. Factors like the total incidence of duty and taxes at the import stage, valuation method, time taken for customs clearance, informal costs, and degree of ease in utilization of exemption schemes are directly connected to tariff structure, they said.
According to the sources, the complexity of exemption schemes increases the burden on firms. Low utilization of duty exemption schemes is indicative of the fact that they are not easy to use especially for small and medium exporters. A comparison of four major export oriented schemes including Manufacturing Bond Control Office (MBCO), Duty & Tax Remission for Exports (DTRE), Export Oriented Units (EOUs) and Export Processing Zone (EPZ) shows that around 5 percent exporters, making 31 percent exports, availed these schemes in 2017-18. This number increased to around 6 percent in 2018-19 and volume of exports to 37 percent. Out of total 15000 exporters, around 5600 exporters make just up to Rs. 5 million exports per annum and if the export limit is increased to Rs. 10 million, then the number is above 7000 (about 50 percent) of total exporters though their volume of exports is just around 1 percent of total exports.
Copyright Business Recorder, 2020
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