In a recent development, the government of Pakistan has decided to reject a proposal to impose up to 100% regulatory duties on luxury imports and used cars. This decision comes in the wake of objections raised by members of the European Union and the realization that higher duties may have a negligible impact on curbing imports.
The proposal to impose regulatory duties on approximately 125 imported goods was presented to the Tariff Policy Board, which met under the instructions of interim Prime Minister Anwaarul Haq Kakar. The primary objective of these proposed duties was to discourage the import of certain goods due to the rising import bills that have been a concern for the nation.
Sources familiar with the matter have informed The Express Tribune that the Tariff Policy Board did not endorse the recommendations and deferred the decision. This move comes six months after Pakistan completely abolished regulatory duties on the import of used cars up to 1,800cc and significantly reduced duty rates on various items, including new cars and mobile phones.
The authorities had proposed targeting imported goods that could significantly save foreign exchange reserves. For goods with low duty rates, it was suggested to double the rates, while for those with higher rates, an increase of 30% to 50% was proposed. This proposal aimed to tax around 104 goods that were previously subject to higher duties, along with a list of 20 new items for the imposition of regulatory duties, with an estimated reduction of over $400 million in the import bill.
However, the board’s decision not to endorse the proposal was influenced by concerns that it could negatively impact Pakistan’s negotiations with the European Union regarding the next phase of the Generalized System of Preference plus (GSP-plus) scheme. Under this scheme, Pakistan exports goods to the EU duty-free, and additional duties on EU imports from Pakistan have raised objections from the EU in the past.
Furthermore, the historical ineffectiveness of additional duties in reducing imports was considered. Last fiscal year, the State Bank of Pakistan’s restrictions on opening Letters of Credit and the availability of foreign currency for imports had significantly reduced the import bill.
During the meeting, it was also noted that imposing duties on goods with low import volumes, such as imported yogurt, would not significantly impact the import bill.
The Federal Board of Revenue (FBR) argued that duties should only be imposed on items with substantial imports, suggesting a more targeted approach.
It’s worth noting that Statutory Regulatory Orders (SRO) 1571, which governed the increased rates of regulatory and additional custom duties, had expired earlier, resulting in consumer items, including cars, mobile phones, home appliances, and more, becoming comparatively cheaper.
In summary, the government’s decision not to impose 100% regulatory duties on luxury imports and used cars reflects a cautious approach, considering both international trade relations and the effectiveness of such duties in curbing imports. This decision comes amid ongoing efforts to manage the country’s import bill and economic challenges.
