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Govt likely to enhance customs duty by 1% on all imported items

Govt likely to enhance customs duty by 1% on all imported items

ISLAMABAD: With the aim to discourage the rising import bill, the federal government is considering to enhance additional customs duty by 1 percent on all the imported items or to rise regulatory duty (RD) on 1,550 items.

The official sources said that different options are under consideration to increase additional customs duty by 1 percent on all the tariff lines of 7,200 or jack up the regulatory duty on over 1,550 luxury items.

The country is facing financial constraints as trade deficit has widened up to over $5 billion. In 2016-17 fiscal, the current account deficit stood at $26.68 billion, which rose to $31.1 billion in 2017-18 and in the first half of the current fiscal, the current account deficit reached a record level of $18 billion while in June, the country faced $2 billion deficit.

The Ministry of Commerce and Federal Board of Revenue (FBR) held different meetings on this subject but argued that it was the brainchild of the Ministry of Finance to prevent increasing number of imports in the current fiscal year. In case of approval for raising additional Customs Duty by 1 percent, the exemption will remain available to some items such as medicines or raw materials.

It will have a significant revenue impact if the government decides to jack up the additional Customs Duty by 1 percent from 3 to 4 percent in one affect the manufacturing sector negatively by raising the cost of input as the prices of raw materials can go up.

When top officials of Ministry of Commerce were contacted for comments, they said different proposals were under consideration but it was not their brainchild. “We have proposed a list of items to the FBR on the desire of Ministry of Finance,” said another official. When the FBR high-ups were asked about this development, they said that this proposal might not get through during the remaining period of the caretaker setup as it did not come for discussion during the last cabinet meeting. However, there is a possibility of cabinet meeting before the scheduled election, but the caretaker could take decision to this effect before installation of incoming government after winning the elections.

One top official of the Finance Division was of the view that in the last two months different steps were taken on economic front with the aim to discourage imports and give impetus to exports such as raising discount rates by the central bank in last three monetary policies, allowing upward adjustments in exchange rate as the rupee stood at Rs130 against US dollar, cash margin requirements on imports and now the State Bank of Pakistan (SBP) was considering to differentiate between commercial importers and industrial importers with the intention to raise cash margin for commercial importers while granting exemption to industrial importers. In the aftermath of measures taken on monetary tightening, exchange rate and administrative steps, now it is the considered stance of the Finance Division that fiscal measures should be taken as follow-up step to further discourage imports.

The current account deficit (CAD) rose sharply and touched the highest level of $18 billion in the last fiscal year ending on June 30, 2018 with the import bill of $60 billion. The senior officials of the Finance Ministry argued that combination of monetary, fiscal and administrative steps are required to slash the current account deficit by $5 to $6 by reducing imports and increasing exports and remaining $12 billion deficit on external accounts could be managed after seeking fresh bailout package from the IMF.