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Number of Downlaods: 31

Published Date: Feb 29, 2012

Withdrawal of Regulatory Duties: A Step Taken by the Government (PB 28)

Afsheen Naz
February 2012

Introduction

Pakistan is a developing country and has registered a very low growth rate (2.4%) according to the economic survey of Pakistan 2010-11. At present the country is suffering from massive internal crisis, both natural and manmade, and external pressures. To cope with the crises, the revenue generation side of the country has proved to be very weak. Due to these limitations the dependence on foreign loans has increased over a period of time. Heavy foreign debt is the major reason for Pakistan’s loss of sovereignty.

Different measures have been adopted at various periods of time for the improvement in revenue machinery. The federal budget 2011-12 introduced many reforms including reduction in sales tax from 17% to 16% and broadening of the tax base. The revision of the federally announced policy in 2008 regarding the removal of regulatory duties (RD) is also amongst one of the announcements.

In 2008, 379 items were notified to bring in a regulatory duty net. Most of the items which brought in the RD net consisted of edible items and some of them were machinery items. Two major reasons were identified for taking such an action at that time of which one was the reduction in import bill and other was volatile trends in international market prices. However, the list of RD items was reviewed in 2009 and under the notification of SRO 482(I)/2009, a total of 397 items brought in RD net. These items were subject to the RD rate between the ranges of 10% to 50%.

In the current budget the list of 397 items has been reduced to 60 items under the notification of S.R.O.479 (I)/2011. The decision of the government on the removal of RD is two fold; one to combat the smuggling of goods through the porous Pak-Afghan border and second to curtail inflationary pressure on the economy.

The current paper attempts to estimate the quantitative impact of the government’s decision to remove regulatory duties on revenue collection, trade balance and domestic industry.

Specific data of the revenue generated by Regulatory Duties (RD) was difficult to obtain as the revenue figure is usually reported under the broad head of custom duties. Due to a dearth of exact figures, the figures used in the paper are based on reasonable approximation. Data on the 337 items, which are now RD free, has been collected with the help the website of the Federal Board of Revenue. However, data has been collected for the period of May-June 2010 to May-June 2011.

According to the collected data, it has been estimated that these items contributed approximately Rs. 5.65 billion to the total revenue of the country and comprised 3.99% of the total revenues generated under custom duty head during the period of one year. The removal of duty on these items is projected in deterioration in balance of trade and revenue collection bill. Moreover, a move towards an “open” economy will severely affect the domestic industry.