Rationalising tariff structure

Advisor to the Prime Minister on commerce and investment, Abdul Razak Dawood has assured the business community of rationalising tariff structure in the next fiscal year budget to expand the production base of the economy, particularly of manufacturing sector under “Make Pakistan Policy.” One wishes this dream come true. However, he made it clear that export tariff and tax slabs may not be changed.

The trade bodies are persistently complaining against high rates of import and regulatory duties on the import of raw material and intermediate goods, which are consumed in exportable products. These duties make finished goods non-competitive in the domestic and foreign markets. Likewise, abnormally high rates of turnover tax, withholding tax, corporate income tax, super tax and sales tax vitiate the economic environment.

Textile exporters have urged the government to restore zero-rated sales tax regime for five major export oriented industries of textiles, carpet, leather, sports and surgical goods. Textile products alone contribute 60 percent of annual exports of the country. In the budget of current fiscal year, government has withdrawn the zero-rate sales tax facility and imposed refundable sales tax of 17 percent. The logic behind the withdrawal of this concession was that producers of export industries were collecting sales tax on sales of products in the domestic market but the money was not transferred to the national exchequer. The lockdown and downturn of global economy has decreased the quantum of exports by 54 percent. The exports value fell below $1 billion in the month of April, Pakistan Bureau of Statistics reported on Tuesday.

The goal of taking Pakistan’s economy out the prevailing quagmire of imports dependence and making it a production and exports led economy cannot be achieved merely by lowering import and regulatory duties. The present ruling leadership is cognizant of the inevitability of implementing long term industrial and agricultures policies in addition to a composite trade policy. Announcement of industrial policy has missed several deadlines and new deadline has not been set after the expiry of final one in September last year. Formulation of agriculture policy seems to be out priorities.

Instead of working out a composite long term trade policy that include facilitation of exports all surplus items, a five year textile policy 2020-25 has been approved. It envisages increasing textile exports from the current quantum of $3.7 billion to $25 billion. How this quantum leap can be taken to increase textile exports 9 times within the next five years when the high input cost does not provide competitive edge over the competitors including India, Bangladesh, Indonesia, Vietnam, Thailand and even Cambodia? Technological stagnation, dearth of skilled workers, lack of products innovation and above all highest in the world electricity and gas tariffs hinder rapid industrialisation, comprising competitive industries of finished goods, imports substitutes and raw material. The government has succumbed to the pressure of IPPs to make the Inquiry Committee report public.  How can regionally competitive power tariff be approved for industrialisation?

The domestic industrial base of civilian goods is stuck in the second generation technology. The country can enter into next stage of industrialisation only when fourth and fifth generation technologies are inducted and indegenised. Another key variable of fast industrialisation is provision of fiscal incentive of long term tax holiday. South East Asian developing countries entered the sustained level of economic growth and self-reliance by virtue of induction and indegenisation of latest technologies, skill development and progressive taxation regimes. No such favourable economic environment exists in Pakistan. The sayings of father of classical school of economic thoughts Adam Smith, “if wishes were horses beggars might have ridden on them” reflects the mindset of decision makers who predict about economy’s turnaround by merely lowering import duties.