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Tuesday March 19, 2024

Customs asked to verify exemptions before import clearance

By Our Correspondent
July 22, 2018

KARACHI: Ministry of commerce asked the customs authorities to verify tax exemptions status of imports before clearing any consignment in a move to check inbound shipments that are the key driver to $18 billion of current account deficit, officials said on Saturday.

The ministry of commerce directed the customs department, saying all import authorisations/exemptions/special permissions must be subject to verification of genuineness/authenticity from the ministry, according to the officials.

The officials said the decision was taken on the alarming rise of imports. The State Bank of Pakistan data showed that imports of goods rose to $55.846 billion in the last fiscal year of 2017/18 compared to $48.683 billion a year earlier.

Growing imports built up pressure on the current account deficit that widened to $18 billion or 5.7 percent of gross domestic product in FY2018, up a hefty 43 percent over the previous fiscal year.

Tax officials said the ministry has deputed an official of joint secretary level as focal person to verify the authenticity of exemption certificate to grant the clearance of imports.

Officials said huge quantum of imports is due to gross misuse of exemption certificates issued under various free and preferential trade agreements and special packages for various industries for import of raw materials.

An official document showed that the government gave tax exemptions amounting to Rs541 billion in various heads during the last fiscal year. The last government exempted more than Rs300 billion of statutory regulatory orders related to tax exemptions after it signed an agreement with the International Monetary Fund in September 2016.

The Economic Survey of Pakistan said the cost of customs duty concessions swelled to Rs198.2 billion in FY2018 compared to Rs151 billion in FY2017, depicting an increase of 31.2 percent or Rs47.2 billion. Approximately, 22 percent of customs duty exemptions were attributed to lower rates under various bilateral free trade agreements. Alone Chinese imports ate up Rs31.4 billion on account of tax concessions under the China-Pakistan free trade agreement.

Tax officials said the latest ministry’s restriction on import clearance is applicable on all imports including automotive sector.

The government has taken various steps to discourage imports of non-essential merchandised to save foreign exchange reserves that fell to nine billion dollars.

In October last year, the Federal Board of Revenue (FBR) 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.

Analysts are, however, critical of stopgap nature of regulatory duties. They said such measures could not lead to reduction in imports in the long-run. Especially, coercive duties on non-essentials could not contain their demand among the high income group.

They, however, said reduction in capital-intensive imports and rupee depreciation may discourage inbound shipments.

The central bank said the imports of machinery would scale back as Chinese-pledged infrastructure projects are reaching an advance stage. Energy sector is the key development component of more than $60 billion worth of China-Pakistan Economic Corridor projects.

Rupee lost around 20 percent against the US dollar since December last year, making imports pricey.

Currently, a mini-budget is under consideration at the top level as the economic ministries are contemplating different options to raise the additional customs duty by one percent on all the imported items or to jack up the regulatory duty on 1,550 items to discourage the rising import bills, officials said.

The officials said the ministry of commerce and the FBR held different meetings to discuss the proposals. Even if the additional customs duty is placed the exemption will remain available to some items such as medicines or raw materials.