The government is likely to eliminate Fifth Schedule (conditional exemption of customs duty) of the Customs Act, 1990, introduce zero percent customs duty slab and withdraw additional customs duty and regulatory duties in phases under tariff rationalization plan for budget 2020-2021. In this regard, the FBR is working out the exact revenue impact of rationalization of tariff and withdrawal of exemptions and concessions under Fifth Schedule of the Customs Act.

Sources said that the under new tariff rationalization policy, the government might bring raw material and intermediate goods into lowest slabs. In case zero percent duty slab is introduced, the said items may be covered under the zero percent slab.

The government may not change existing customs tariff slabs in the coming budget. Sources said that the customs tariff rationalisation principles set for 2020-2021 budget also included incentives to local industry, reducing complexities of cascading principle where possible, and relief to general public, particularly those falling below or in range of the poverty line.

The exercise of tariff rationalization for 26 sectors has been underway for which the FBR would inform exact estimates of revenue losses to the Commerce Ministry.

In order to chalk out a uniform policy on tariff rationalization for 2020-2021, the Ministry of Commerce and the FBR have started meetings to chalk out a roadmap for implementing tariff policy in phased manner devised by the National Tariff Commission (NTC) in consultation with the business community.

The major proposal of rationalization of tariff included simplification into tariff system, introduction of zero slabs, reduce concessionary SROs, and elimination of the 5th schedule.

There is also proposal to remove additional customs duty and regulatory duties in the next budget. The items under the Fifth Schedule have been proposed to be brought into the First Schedule of the Customs Act in the coming budget.

Hundreds of tariff lines are availing exemption without any condition under Fifth Schedule of the Customs Act 1990, which should be brought into the First Schedule.

The cost of exemptions in respect of customs duty was calculated at Rs233.134 billion for 2018-2019 against Rs198.151 billion, reflecting an increase of Rs34.983 billion. The exemption of customs duty for the import of items used in Lahore Orange Line Metro Train caused a revenue loss of Rs749.1 million during 2018-2019.

The total tax exemptions and concessions to various businesses, sectors, lobbies/groups, investors and Chinese imports have cost the government Rs972.4 billion during the fiscal year 2018-2019 against Rs540.98 billion in 2017-2018, reflecting an increase of Rs431.42 billion.

Total cost of exemptions granted on imports from China caused accumulative revenue loss of over Rs32 billion under SRO 1296(I)/2005, SRO 642(I)2016 and SRO 659(I)/2007 during the period under review.

The cost of sales tax exemptions totalled at Rs597.7 billion in 2018-2019 against Rs281.05 billion in 2017-2018; income tax Rs141.6 billion against Rs61.78 billion; and cost of customs duty exemptions was Rs233.1 billion against Rs198.15 billion in 2017-2018.