Economic managers in Islamabad are trying hard for downward rationalisation of tariffs from existing 30-35 per cent to 20-25 per cent, which mainly covers auto sector imports. Initial estimates indicate downward tariff revision will eat away around Rs3 billion revenue, but consumers will hardly get a marginal discount of Rs25,000 to Rs40,000 per unit.
Official documents made available to Profit indicate that Economic Advisory Council (EAC) had already opposed the idea of downward revision and reduction of general tariff slabs from existing eight to six due to its huge revenue implications. Documents point out that at present, the general maximum tariff rate in Pakistan is 35 per cent and there are eight general tariff slabs. In addition, there are nine special tariff slabs mainly for luxury items, including automobiles (completely built units), alcoholic beverages and edible oil, and the peak tariff rate is 100 per cent. During a recent Tariff Reforms Committee meeting, which was held under the chairmanship of Planning Commission Deputy Chairman Nadeem-ul-Haque, four sub-committees were constituted to work on different recommendations made in the consultants’ report on tariff rationalization. The sub-committee led by the Federal Board of Revenue (FBR) was asked to submit proposals to lower the maximum tariff rate to 25 per cent and reduce number of tariff slabs. Official documents point out that during the budget exercise 2011-12, FBR had submitted a proposal for downward revision of tariff, but it was not approved by the Economic Advisory Committee (EAC) on account of revenue implication of Rs3 billion.
After refusal from the EAC, another sub-committee was formed under the Ministry of Industries and Production (MoIP) to review the tariff structure mainly related to auto sector as all tariff rates above 25 per cent cover auto industry imports. In addition, it was assigned to work out special tariff rates that goes up to 100 per cent and deals with alcoholic beverages, edible oils, precious metals, mobile phones and exposed cinematographic films. Documents suggest that Planning Commission (PC) – the originator of tariff rationalisation idea, Ministry of Industries and Production (MoIP), Engineering Development Board (EDB) and Federal Board of Revenue (FBR) have agreed to reduce general tariff rates from existing 30-35 per cent to 20-25 per cent and reducing general tariff slabs from existing eight to six, but awaiting node from EAC and Economic Coordination Committee (ECC).
In FBR’s viewpoint downward revision of tariffs will not only a step forward towards tariff rationalization but also it will also encourage the legal import of consumer goods and reduce smuggling. In addition, FBR expects that subsequent increase in import volume of these products will compensate the revenue loss on account of tariff reduction. However, FBR has underlined that it does not support further reduction of tariff slabs (below six) and reduction in special tariff rate that deals with luxury items. Speaking to Profit, EAC member Dr Ayesha Ghaus Pasha said that downward tariff rationalisation would have an accumulated effect as the reduction in Customs Duty would also reduce the General Sales Tax receipts and other associated taxes and surcharges. She believes that Rs3 billion revenue loss estimate could further go up once tariff reduction is made. She was of the view that if tariff is reduced by 5-10 per cent the car prices should bring down by the similar percentage if not more. The proposed reduction of Rs25,000 to Rs40,000 would merely a peanut. An unnamed auto manufacturer said that tariff rationalisation would hardly benefit the auto sector or consumers as car prices in Pakistan are directly linked to dollar-yen-rupee parity. He underscored that tariff rationalisation would only benefit car importers and cause huge foreign exchange drain due to luxury imports.
