Budget proposals 2011-12 – Commerce Ministry backs tariff cuts

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The Ministry of Commerce (MoC) has proposed the zero rated tax regime for the imported raw materials which are necessary for the manufacturing of footballs, surgical goods and poultry feed.  It has also advocated a radically simplified tariff regime and unconditional concessions for the jewelry sector.
The Ministry of Commerce (MoC) has made these suggestions in its proposals for the Federal Budget 2011-12, which has been submitted to National Tariff Commission (NTC) for its review before sending it onwards to the Federal Board of Revenue (FBR). It has underlined that the competitiveness of domestic exports has diminished sharply and the only viable solution is to bring tariff rates down but without affecting local industry adversely.
Budget proposals obtained by Pakistan Today show that the foremost proposal of the ministry is to ensure transparency in the application of tariffs. It was pointed out that SRO 575(I)2006 dated 05-06-2006, which offers exemption on the import of plant, machinery, equipment and apparatus, including capital goods,  provides across the board concession in customs duty at zero percent and five percent on a number of goods, irrespective of a higher tariff indicated in the Schedule of Customs Act, 1969.
However, the MoC has proposed that to reflect the actual tariff levied on various goods it is important to rescind the SRO 575(I)2006 and transpose the concessional rates of duty as part of the Schedule to the Customs Act, 1969. The ministry believes that this exercise will have un-quantifiable benefits to the trade by making the tariff more transparent.
In addition, the MoC has pointed out that in many cases zero or five percent Customs Duty is applicable to ‘respective headings’ (i.e. no headings or sub-headings are mentioned), which provides an opportunity to subordinate staff at Customs stations to indulge in malpractices and compilation of correct statistics. It is accordingly proposed that specific tariff lines may be incorporated in the notification.
The commerce ministry has also urged simplification of the tariff regime in the case of the manufacture of football bladders, surgical goods and poultry industry. The ministry has underscored that the provision of duty free import of raw materials to these sectors which was represented by SRO 567(I)2006 dated June 5, 2006 offers multiple concessions. But, since most manufacturers in these three sectors are SMEs (in fact cottage industries) and are primarily unregulated; the objective of the policy has not been effectively implemented.
The ministry has proposed that eight tariff lines, (Annex-I) currently enjoying zero duty concessions, theoretically, may be included in the ambit of zero tariff in the First Schedule of Customs Tariff. Imported input for poultry feeds, 11 tariff lines, (Annex-II) may be completely exempted in the First Schedule. This will have a positive impact on the development of this industry for local consumption initially and exports subsequently. It has also been proposed that the surgical goods sector an important industry in any effort towards the diversification of exports. However, the conditions presented in the SME sector prevent any effective effort towards direct import on the part of these firms. Ten raw materials (Annex-III) may, therefore, be included in the zero tariff regime.
Elaborating on the gems and jewelry sector, the ministry has drawn attention towards its export potential and to bring the export of precious stones and metals into the legitimate economy while Sales Tax and Withholding Tax on diamonds, precious stones, platinum and palladium may be exempted, without any condition.
Furthermore, the ministry has indicated that during the federal budget 2008-09, tariff rates were increased on 360 tariff lines. The increases varied between 20 and 35 percent. Subsequently, regulatory duty was also imposed on about 400 tariff lines at the rate of 15-35 percent. The accumulative incidence on various products now stands at 50 percent, while the tariff on auto sector has also risen considerably through the implementation of these measures, the MoC underscored.
It has proposed that Regulatory Duty imposed during 2008-09 may be abolished, especially in the manufacturing sector. Tariff increases during the budget 2008-09 may be brought back to earlier position, except agriculture.
The ministry of commerce in its budget proposals has also highlighted that applied tariffs on imports have a direct effect on export led growth. High tariff on imported inputs impact adversely on the selling price of similar domestically produced materials and exports suffer as a result, indirectly. This incidence, being part of the prices of inputs, cannot be neutralised by way of drawback and refunds since the policy has been considerably abused in the past.