High regulatory duties on import fail to cut trade deficit

KARACHI: Slapping of regulatory duties on non-essential items has so far failed to bring desirable results as imports continued to swell during the first eight months, thrusting wide the country’s trade deficit, analysts said on Thursday.

“The government should put a short-term ban on import of luxury and non-essential items to address external pressure,” Muffasir Ata Malik, president of Karachi Chamber of Commerce and Industry (KCCI) said, adding that the measures to curtail imports have abysmally failed.

In October last year, Federal Board of Revenue issued a list of 731 items, including cars as well as mobile

phones on which five to 80 percent regulatory duties were imposed to discourage imports. Nonetheless, trade deficit widened to $24.25 billion in the first eight months of fiscal year 2018 as compared to $20.09 billion in the corresponding period of the last fiscal year, according to Pakistan Bureau of Statistics.

The deficit was the main factor behind the swelling current account deficit that reached $10.82 billion in the July-February period as compared to $7.21 billion a year earlier.

Imports grew 17.1 percent to $39 billion in the period under review.

Alone, the country spent $847 million on import of cars in July-February, up a significant 27 percent over the corresponding period a year ago.

In an effort to discourage car imports under gift and baggage schemes, government amended import policy in December last year by putting a condition that duties and taxes on import are paid in US dollars by an individual who sends the car.

Analysts said since the decision was called off on pressure from car dealers it would reflect in import statistics in March.

Though Sindh High Court declared the notification through which duties were imposed as illegal it allowed tax authorities to keep collecting taxes till the finalisation of the case.

Likewise, import of mobile phone that bears Rs250 duty/set increased 15 percent to $526 million during the first eight months of the current fiscal year.

Malik of KCCI said the government should encourage local production of mobile phones and investment in local car assembling to avoid outflows of foreign exchange. There are several other imported items on which country is spending huge foreign exchange.

Imports remained buoyant despite five percent rupee depreciation in December last year that made imported products expensive.

Early this week, there was another round of over four percent rupee depreciation in a single day.

Mohammad Sohail, chief executive officer at Topline Securities said rupee depreciation is expected to help in curtailing imports within next two to three months.

“But, there should be more restrictions on imports of luxury and non-essential goods. Expensive cars, mobile phones and consumer items should be subject to higher duty to reduce domestic demand,” Sohail added.