Anomalies in imposition of RD

The regulatory duties (RD) imposed on the import of 713 items about a month ago have been criticised by industrial and commercial sectors of the country. According to Minister of Commerce and Textile, Pervaiz Malik, his ministry had received presentations from several sectors against the recently imposed/increased RD. He also clarified that the duties actually imposed on the recommendation of the FBR were more than what his ministry had recommended. Chairman, National Assembly Standing Committee on Finance, Qaisar Shaikh lamented that the Finance Ministry had not given due weight to his Committee and protested to the Commerce Ministry for not taking industry on board. Last week, the local industry approached the Chairman, Senate Committee on Finance, Saleem Mandviwalla who invited them to give details of the impact of RD on their specific industries. Textile sector asked the Committee to press the government to withdraw 10 percent RD on gas generators as well as on inputs of textile value chain being used by the industry. APTMA highlighted the importance of textiles in Pakistan's economy and requested withdrawal of electricity surcharge of Rs 3.5/kwh to bring it at par with the regional rate of Rs 7/kwh. The Auto Parts Association pleaded that the decision to impose RD had impacted the cost of five raw material items of air conditioners and as a result, the cost of locally manufactured air conditioners would be comparable to the imported ones. As a result, the local industry will be at a disadvantage. Tyre Association stated that the price of tyres of small vehicles had surged by Rs 500 per tyre and for big vehicles by about Rs 5,000. According to them, only 20 percent demand of tyres was met by domestic production while the remaining 80 percent was mainly met through smuggling. The increase in their price would further encourage smuggling of tyres in the country.
The objections of trade and industry on the imposition of RD indicate that the decision, though overdue, was taken in a hurry and without considering all the aspects of the individual cases. The RD was obviously imposed to discourage the import of non-essential items, narrow the trade gap, improve the current account balance and raise some resources for the budget but the impact of the decision could be detrimental in several areas of industry was certainly not the objective and care should have been taken to avoid such adverse impact. For instance, the importance of textile industry can be judged from the fact that it contributes 62 percent to total exports, 8.5 percent to GDP and was the largest consumer of domestic cotton besides being the largest employer of manpower in the country. A 10 percent RD on gas generators as well as RD on inputs of textile value chain would increase the cost of production which would be harmful for the industry. However, APTMA's demand for the withdrawal of surcharge on electricity to bring its cost at par with the regional rate needs a more careful analysis because of its implications on the financial health of the electricity companies. Similarly, RD on air conditioner manufacturing companies should have been levied in a way so as to maintain the prices of locally manufactured products somewhat lower than the imported ones. The argument of Tyre Association also seems to be valid because the government seems to have failed to check the smuggling of tyres and increase in the cost of production of domestic tyres would reduce their demand further in the local market and encourage smuggling. The irony of the matter is that there does not seem to be proper coordination between various government departments. Minister of Commerce is concerned that duties imposed on the recommendations of FBR were more than what his ministry had proposed, implying that FBR's suggestions were given more weight than Ministry of Commerce. Both the Chairman of National Assembly and Senate Standing Committees also do not seem happy with the decision. The positive aspect, however, is that after some grumbling, the government now seems to be in a listening mood. Commerce Ministry has decided to review the recently imposed RD while FBR is preparing a list of anomalies in consultation with industry which will then be placed before the ECC for approval. All of this could have been avoided if the relevant departments of the government had acted in a more coordinated fashion and thought through the matter more comprehensively in close consultation with the relevant industries.