According to a Business Recorder exclusive, the Commerce Ministry together with the Federal Board of Revenue (FBR) have prepared a list of reportedly hundreds of imported items which would have a regulatory duty (RD) of between 5 to 10 percent slapped on them. The objective of this exercise is not to raise total revenue collections, as has been the overarching objective of decisions that envisage an increase in existing taxes or slapping on new ones, but to increase prices of imported non-necessary items in the domestic market which, in turn, would reduce the current trade deficit and extend the needed support to the balance of payment (BoP) position.
The reason behind the compilation of this particular list can be sourced to the overvalued rupee which is a policy measure that has been supported by the federal finance minister Ishaq Dar during his current tenure as a means to understate his rising reliance on external borrowing; particularly the rise in borrowing from the external commercial banking sector which is at high rates of interest with a low amortization period. High-end exporters, particularly those engaged in the textile made-up sector, support the policy of an overvalued rupee by pointing out that their input costs, particularly electricity, is in dollars and cents and hence if the rupee value is allowed to be set by market forces then they would witness a rise in their input costs making them uncompetitive in the international marketplace. At the same time, they maintain that the failure of FBR to release refunds is a major source of concern and urge the government periodically to release these refunds promptly - a request that the government has been unable to meet given its reliance on delaying these refunds, sometimes indefinitely, to generate a sustainable budget deficit. The FBR, in turn, maintains that the delays are due to the need to carefully assess the veracity of each and every refund claim given that hundreds, if not thousands, of claims are simply fake. Be that as it may, there is an urgency for the government to deal with these issues by not only setting tariffs in domestic currency but also by reforming the tax system regarded as unfair, and anomalous.
With the advent of the Abbasi administration, the most serious economic concern has been the burgeoning trade deficit which led to a rise in pressure on the government to revisit the export incentive package that was announced by Nawaz Sharif in January this year, and which has, so far, failed to arrest the decline in exports, as well as seek to implement measure that would arrest the rise in imports. The option to reduce the RD is therefore a measure that would make our non-essential imports less attractive. The question, however, that arises is whether these non-essential imports are of such a volume that they would help contain the trade deficit. Without the list detailing specific items this question remains moot, however, one would urge the government not to slap RD on those items which are used as inputs to the export sectors. Additionally, there has been a marked increase in imports from China under the China Pakistan Economic Corridor projects and in the absence of transparency in these projects, it is unclear whether these imports would be impacted.
Pakistan has porous borders of thousands of miles which account for large scale smuggling on an annual basis. This fact requires the government to carefully consider not only which items to slap an RD on, but more importantly, to take account of the price of these items across our borders which may fuel smuggling across our borders. Thus the decision to levy RD on any item is an exercise that requires a careful analysis and with barely two months of the Abbasi administration may not be sufficient to determine which imported items would respond to an RD without increasing smuggling which has the disturbing element of supporting a society that flouts the laws of the land.