The Federal Board of Revenue (FBR) has said that the withdrawal of concessionary/exemptions statutory regulatory orders (SROs) and abolition of zero percent slabs in budget (2014-15) has increased the share of dutiable imports to a great extent.
An FBR report on customs tariff released here on Monday said that one of the serious issues that has been surfacing during last many years was the unprecedented surge in the duty-free import, which surpassed dutiable imports from 2008-09 to 2013-14. But due to withdrawal of various SROs during 2014-15 and abolition of 0 percent slabs has increased the share of dutiable imports to a great extent. It is hoped that the trend will continue during the next two years.
During 1994-95, the share of dutiable imports was around 70 percent. From 2008-09 to 2013-14, duty free imports were higher than dutiable imports. Now the situation has changed which is evident from the fact that share of dutiable imports has started to pick up strongly during 2014-15. This reversal is attributed to abolition of 0 percent slab and withdrawal of exemptions through some SROs in the Budget 2014-15 which has resulted in increased share of dutiable imports.
The FBR said that a huge amount of revenue foregone due to exemptions/concessions from customs duties has been estimated when viewed in the context of resource shortage with the government. A three year programme of withdrawal of exemptions has been chalked out and first set of exemptions has already been withdrawn. The cost of exemptions in Pakistan has mostly been concentrated in automobile, machinery, iron and steel etc. On the other hand, Indian priority on exemptions from customs duties is in the petroleum, precious stones/metals, edible oils etc.
Despite large scale tariff rationalisation, Pakistan still has average tariff rates for non-agricultural products higher than countries of the region like India and Sri Lanka. Simple mean tariff in Pakistan is higher than South Asia region and even higher than average of low income countries of the world. For greater competition and achieving higher trade intensity, Pakistan will have to slash down its maximum tariff to 15 percent and eventually to 10 percent in the second stage. Although Pakistan has low average tariff for agriculture but manufacturing sector tariff is comparatively higher, it added.
It said that the revenue foregone due to exemptions/concessions from customs duties was estimated at Rs. 132 billion during 2013-14. These exemptions also included specific concessions/exemptions to various countries/regions etc. Cost of exemptions for these regions/countries etc was Rs. 27 billion out of which Rs 22 billion relates to China. The Government of Pakistan is working on three years plan for elimination of concessions/exemptions. First set of exemptions/concessions relating to customs has already been withdrawn during Budget 2014-15.
An attempt has been made to compile chapter-wise cost of exemptions on account of customs provided through SROs during 2014-15. Similarly, chapter-wise details in case of India were also retrieved for 2013-14. Chapter-wise structure of cost of exemption reveals vast divergence of policy in Pakistan and India. For instance, Pakistan has foregone more than 1/5th of revenue from exemptions granted to the automobile (Ch: 87) against only 0.7 percent in India. Top cost of exemption in India pertains to mainly POL products and other fuels (Ch: 27) ie 27.5 percent, while it is only 11.6 percent in Pakistan. On the other hand, significant share of 24.8 percent relates to machinery in overall revenue foregone almost double than India. In Pakistan, other major cost of exemptions shares goes to iron and steel, edible oils, organic chemicals etc. On the other hand, apart from POL products, India's other major cost of exemptions were related to precious stones/metals (Ch: 71), edible oils (Ch: 15) etc, it added.
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