The Federal Board of Revenue (FBR) and the National Tariff Commission (NTC) have proposed to eliminate Fifth Schedule (conditional exemption of customs duty) of the Customs Act 1990 and gradual withdrawal of regulatory duties and additional customs duty on the imported items in the coming budget (2019-20).
FBR Member Customs Policy Muhammad Javed Ghani Monday informed the National Assembly Standing Committee on Finance that rationalisation principles set for 2019-20 budget 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 poverty line, while increasing revenue through import duties has not a consideration for budget 2019-20.
Senior officials of the NTC informed the committee that both the NTC and FBR have proposed to abolish Fifth Schedule of the Customs Act 1990. The items under the Fifth Schedule have been proposed to be brought into the First Schedule of the Customs Act in coming budget. Around 400 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 NTC has also proposed to abolish additional customs duties and RDs in budget. It would be best to implement these measures in one year, but due to revenue implications, the same can be enforced in 2-3 years period.
The NTC has proposed the budget-makers to introduce customs duty slab of zero percent in budget (2019-20) and reduce concessionary SROs, apply Free Trade Agreement (FTAs) rates where possible and implementation of the tariff reforms.
The NTC has proposed the government to immediately reduce tariff on raw materials and intermediates goods, reduce customs duty to zero on raw materials/inputs not produced locally and keep level of nominal protection intact for domestic manufacturers for one year and then reduce it gradually.
The FBR Member Customs Policy said that the guiding principles for budget 2019-20 included customs tariff rationalisation, exports-led growth, trade facilitation and ease of doing business, revenue generation and relief to the common man.
Javed Ghani said that the regularly duties would be gradually decreased and ultimately abolished in phase-wise manner.
Under the budget policy for 2019-20, the FBR Member Customs Policy said that the high tariff on import of non-essential and luxury goods would continue till trade balance improves significantly. The FBR has proposed lower duty structure on socially sensitive items like vegetable, pulses, etc and complete rationalisation of regulatory duties in three years period. The FBR has also proposed exemption schemes to be phased out and minimising concessions and exemptions regime i.e. size of the Fifth Schedule would be gradually reduced over a period of three years.
The Customs Tariff Rationalisation Policy for 2019-20 further revealed that sectors reviewed by the tariff rationalisation committees (TRCs) are chemicals and plastics, paper and paper board, textile sector, steel sector, machinery and capital goods, and home appliances and mobile phone sector.
Ghani further shared principles of customs tariff review with the committee. The customs tariff rationalisation would also include tariff changes only in accordance with the notified sectoral policies, cascading principle with merit-based exceptions to safeguard industry and customs tariff to remain an instrument for industrial and exports-led growth.
He said that the cascading principle included lower rate on raw material and highest rate on finished/consumer goods and in-between rates on intermediately products and they would be applied according to the nature i.e. whether the imported item is a value-added raw material, semi-finished intermediary goods, etc.
He referred to the complexities owing to cascading principle, saying that the local manufacturers demand more tariff gap between raw materials and finished goods (tariff protection), consumer of imported raw materials/ intermediary goods demand lower tariffs on grounds of insufficient local supply/ monopolistic treatment, quality issues and varying specifications of same item (not locally produced).
NTC Member Robina Athar informed the committee that Prime Minister Imran Khan has given in-principle approval of the new National Tariff Policy. She said that the NTC has conducted a huge exercise and reviewed 7,000 tariff lines of the Pakistan Customs Tariff. The new tariff policy would be presented before the federal cabinet meeting for approval.
The NTC member said that the Commission is proposing review of the entire tariff lines and overall changes in customs tariff in coming budget. During the exercise, over 100 associations have been dully consulted.
She said that objective of tariff reforms exercise is to simplify current tariff, reduce cost of raw materials and intermediates especially for SMEs, and facilitate the integration into global/regional value chains.