Replacement of zero percent customs duty slab negatively affected manufacturing sector

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has been informed that the replacement of zero percent customs duty slab, covering primarily the raw materials and machinery, with three percent slab (plus two percent additional duty) has adversely affected the competitiveness of the manufacturing sector.

Sources told Business Recorder that in a recently held meeting of the ECC, it was further informed that the import tariffs were traditionally employed as a revenue generation tool rather than instrument of trade policy as import tariffs were easy to levy and administer than direct taxes.

Sources said that in a recently held meeting of the ECC, the Commerce Division informed the meeting, Pakistan had gradually liberalised tariffs, though with occasional increases in tariff protection from time to time.

There are several issues created by the current tariff regime.

The employment of import tariffs as a revenue tool, has created multiple distortions, and affected the competitiveness of manufacturing, especially the export-oriented sector, the higher import tariffs on imported raw materials, intermediate goods and machinery, has increased the cost of inputs.

The sustained high level of tariff protection has created inefficiencies in the manufacturing sector, which is unable to protect its share in the domestic market, not to speak of competitiveness in the global market.

The high tariffs have created an anti-export bias, as the producers of goods find export markets less attractive than the protected domestic market.

The burden of the protection is borne by the domestic consumers, since domestic prices for the protected items are maintained above the international market prices.

The ECC was informed that the multiple duty slabs, high tariffs, concessionary SROs, and regulatory duties had made the tariff structure complex.

The high tariffs have increased the incentive for smuggling, under-invoicing and miss declaration of quantity and quality of goods.

There are infra-sector anomalies and discriminations, since for several raw materials the tariffs for industrial and commercial importers are different.

It has created bias against the SMEs, who cannot import raw materials themselves and rely on commercial importers for sourcing their inputs.

Frequent imposition of regulatory duties has made the tariff structure inconsistent and unpredictable, which hinders investment.

The replacement of zero percent duty slab, covering primarily the raw materials and machinery, with three percent slab (plus two percent additional duty) has adversely affected the competitiveness of the manufacturing sector. Currently, Pakistan maintains the highest average weighted tariff among the 70 countries having more than USS 20 billion annual exports.

Due to the inability of the tax machinery to collect direct taxes, the reliance on taxes collected in Pakistan at import stage has become alarming.

Copyright Business Recorder, 2020