In order to arrest the rising trend in imports and narrow the current account deficit, the ECC in its meeting held on October 6, 2017 had approved the proposal for increase/levy of regulatory duties on a number of non-essential/luxury items. The FBR issued the concerned SRO on October 16, 2017, imposing the levy on 27 new items (137 tariff lines) and increase in RD on 31 existing items (219 tariff lines). Since then, a large number of representations were received against the levy/increase of RDs from different stakeholders. Both the Standing Committees on Finance in the National Assembly and the Senate were also approached for the purpose. Resultantly, an Inter-Ministerial Committee, comprising representatives from FBR, Ministry of Finance and Ministry of Commerce was constituted, which held several meetings and also consulted the Textile Division, Engineering Development Board and National Tariff Commission in this regard. This committee examined all the representations regarding removal, rationalisation and imposition of RD, keeping in view the recommendations of the Committee, RD on 8 items (59 tariff lines) was done away with, RD on 6 items (22 tariff lines) was reduced, RD on 5 items (43 tariff lines) was increased, and RD on 11 items (58 tariff lines) was levied afresh. The FBR is of the view that the impact of these measures during January-June, 2018 is expected to be revenue neutral.
We feel that revision in RD on dozens of items has been done in good faith after listening to various representations made by trade and industry. According to sources, a total of 53 representations were received from different stakeholders. In 41 representations, importers and local manufacturers sought protection/removal or partial exemption from RD claiming that some are imported goods for their industry. In 12 representations, the local manufacturers sought protection against cheap imported goods through the imposition/enhancement of RD. Certain anomalies in the existing duty structure were also identified in some representations with a request for rationalisation. The list of items on which the RD has been either reduced or abolished shows that the Committee has done a good job. It has approved this measure to lower/revise the RD on items which are considered raw materials/inputs of an industry. The action of the government will encourage their production within the country and enhance exports, particularly after devaluation of the rupee. Most of the items on which duty has been imposed or revised fall under the category of non-essential items. Obviously, their prices in the local market will increase and demand conditions would dictate the substitution of local products with foreign items. Anyhow, how much the country could save in terms of foreign exchange through the imposition of RD would only be evident after some months. Those who think that only the revision of RD in itself could lower demand and save foreign exchange are, however, sadly mistaken because if this move was not followed by a restrictive monetary and fiscal policy, the result could be quite the opposite of what was expected. Anyhow, the whole exercise, to a certain extent, smacks of lack of clarity and some confusion in the government circles. As such decisions affect a large number of people and investment decisions of entrepreneurs and the business class, the RD structure in October, 2017 should have been finalised and designed with more care. An impression that the government could be forced to revise its policies if a proper level of pressure is exerted on it to change its stance must also have been strengthened.