ISLAMABAD: In bid to fulfill a commitment made with the IMF under $6.6 billion EFF facility, the government has decided to implement a simple import tariff structure with four slabs between zero and 25 percent rates in a phase-wise manner in the next three years.
According to details, the government has decided to phase out maximum statutory rate of customs duty under tariff reforms. The maximum rate of duty was reduced from 150 percent in 1987-88 to 25 percent in 2003-04 and raised to 35 percent in 2007-08 onwards. Moreover, standard tariff slabs were also reduced from 14 in 1996-97 to currently six, i.e, 0 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent and 35 percent.
Under the tariff rationalisation plan, only four tariff slabs – 0 to 25 percent would remain under the Pakistan Customs Tariff (PCT). In this regard, the government will reduce a number of general customs tariff slabs to four, minimising higher slabs of customs duty on annual basis. The phase in of the revised tariff rates and phase-out of SROs is likely to start by end of June 2014 and is expected to be completed by end June 2017.
Another change within the customs duty framework has been drifting down of commodities from high tariff slabs to lower slabs. This change was essential for proper cascading between primary, semi-manufactured and manufactured products. Till 2000-01, no commodity was subjected to 5 percent rate of duty. However, it was introduced in 2001-02 and covered 1/5th of total tariff lines and this share had gone up to more than 1/3rd of total tariff lines since 2006-07 to 2010-11. This change has been at the expense of commodities previously subject to 10 percent and 20 percent rates of duty. The slab at 25 percent as maximum tariff has been from 2003-04 to 2007-08. The proportion of tariff lines facing tariff of 25 percent has also declined from around 38.5 percent in 2003-04 to 16.2 percent in 2010-11.
According to the IMF report-2014, trade policy reforms would increase consumer welfare and stimulate growth via increased competition. Simplifying tariff rates, elimination of Statutory Regulatory Orders (SROs) that establish special rates or non-tariff trade barriers in some 4,000 product areas, and improvement of trade relations would deliver the much needed competitive environment.
The authorities are working on simplifying the tariff structure in three years to a simple, transparent framework, with 4 slabs between 0 and 25 percent rates with few exceptions. Design of the new system would be completed by end-May 2014 with phase in of the revised tariff rates and phase out of trade SROs beginning by end-June 2014. Implementation of the new tariff structure would be completed by end-June 2017.
On the other hand, experts said that the government was reducing number of concessionary SROs regarding customs duty and allowing reduced rates/duties under Pakistan Customs Tariff (PCT) to end disputes related to interpretation of SROs. There are certain exemptions and concessions of customs duty which were available in the SROs as well as under the PCT. The availability of the tariff concessions under the PCT would end the disputes on calculation of customs duty through interpretation of SROs. Secondly, it will bring simplification in the customs duty regime.
There are SROs which also provide industry specific concessionary/reduced rates of customs duty. As a policy measure, the FBR wants to reduce the number of such SROs. The exemptions and concessions available under the SROs will be shifted to the PCT so that the reduced rates will be available under standard tariff regime. Instead of giving concessions through the SROs, it will be more appropriate to bring all such concessionary items under the relevant headings of the Pakistan Customs Tariff.
