Industry inputs: NTC all set to finalize proposals for tariff rationalization

LAHORE: The National Tariff Commission (NTC) is set to finalize proposals for tariff rationalization on all industry inputs, said sources.

They said the government has assigned NTC the task of rationalizing tariff in consultation with all stakeholders. Earlier, the Federal Board of Revenue (FBR) was working on it. However, the riddle has been passed on to the NTC where consultation with the industry on tariff rationalization is in final stage. It may be noted that Pakistan increased additional customs duties on several tariff lines in mid 2019 with the objective of increasing tax revenues. Some of Pakistan's key export industries experienced, particularly high increases in production costs due to rising tariffs.

Input costs in the manufacture of leather products, for instance, were estimated to have risen by 3 percentage points. This increase was driven by the relatively strong tariff hike on cattle farming and dairy farming which was set to rise by 5.6 percentage points and which accounts to 53 percent of total input costs in the production of leather products. Other sectors that were also affected were the vegetables oils and fats and wearing apparel sectors.

Here the estimated rise in input costs amounted to 1.3 and 0.7 percentage points, respectively.

In the services sectors, the increases in input costs were also relatively pronounced. Note also that some sectors, mostly in agriculture, experienced falling input tariff costs. Overall, however, these declines were relatively small and limited to a small number of primary sectors only, they added.

The sources said the effective protection is estimated to have risen with the reform in most sectors. Effects were particularly large in both light and heavy manufacturing and construction materials.

In the wearing apparel sector, for instance, the rate of effective protection increased by over 100 percentage points. For the manufacture of vehicle parts, effective protection rose by 41 percentage points, and for mineral products, it rose by 47 percentage points.

According to the sources, even small changes in import duty rates can have large effects on effective protection. Although nominal duty rates did not change much, the reform resulted in an important increase in effective protection accorded to key manufacturing sectors. The reform thus exacerbated Pakistan's already high anti-export bias, which is highly detrimental to the growth prospects of these sectors.

High effective protection rates reduce the attractiveness of exporting. The reform therefore contributed to firms' tendency to remain more inward oriented and to shy away from competing with international peers operating at the technology frontier.

Sources said that the NTC high-ups are in touch with the industry, particularly the export-oriented one, to finalize proposals, which would soon be put before the competent authority for approval.

Copyright Business Recorder, 2020