Excessive SRO usage hinders progress: report

LAHORE: Statutory Regulatory Orders (SROs) have become an instrument to reward the favourite and penalise the abhorred, hampering growth, increasing rent culture and deterring foreign investment, a report said on Thursday.
The report by Policy Research Institute of Market Economy (PRIME) ‘How Intimately are the SROs and development in the textile sector related?’ said Pakistan is infamous for the excessive use of SROs, which are aimed at incentivizing the disadvantaged business groups and improving the performance of the economy. However, they have failed to fulfill the underlying task of supporting the sick industries and stimulate exports.
Federal Board of Revenue (FBR) under the Customs Act 1969 has the power to issue SROs and has issued 4,500 SROs so far, mostly pertaining to textile sector.
The study said to increase the exports of the sector majority of the textile mills get exemptions on import of textile machinery from custom duty under the SRO 809(1)/2009, however it has severely been misused.
Few FIRs were also registered by FBR in this regard, where giant textiles claimed a loss of Rs6 billion through under invoicing and fake evidences.
Despite the tall claims of using SROs to stimulate exports the share of exports from textile sector has not seen a major change since 2009 and is still within the range of 55 percent.
Moreover, controversial SROs, including SROs 212(I)/2013, SRO 154(I)/2013 and SRO 98(I)/2013 extract rents, where rent-seeking SRO culture also brings in anti-consumer and anti-market practices.
Around 86 percent of the custom tariff lines are affected by SROs, reducing effective custom duties while 44 percent values of imports are affected as well.
The study found that 54 percent of customs tariff lines have varying tariff rates for importers and 86 percent of customs tariff lines influenced by SROs thus affect 44 percent value of import.
Independent studies indicated the revenue leakage of 3-4 percent of GDP due to these SROs, while in the loss was estimated to be around Rs600 to Rs800 billion in 2012.
The study said the customs duty has been increased by Rs 237.6 billion in 2013-14 compared with 2012-13. Six sales tax SROs caused a cumulative loss of Rs 230 billion in 2013-14 which is higher than the total income tax expenditure of Rs 96.634 billion.
Sales tax concessions available to the five leading export oriented sectors i.e. textile, leather, carpets, surgical and sports goods caused revenue loss of Rs 65 billion in 2013-14.
Almost 2000 tariff lines, roughly 50 percent of the SROs are liable for import duties of less than 5.1 percent and almost 900 of them are zero rated items.
Under SRO 809 financial implication, textile machinery of Rs 67.24 billion was imported during 2012-13 and February 2014 and import duty of Rs 3.362 billion was exempted.
Despite the best intentions the SROs are treated with suspicion and the chamber of commerce and other bodies have expressed reservations on the extensive use.