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Senate body rejects proposal to reduce custom duties on raw materials

Senate Standing Committee on Finance and Revenue on Tuesday rejected reduction in custom duties on raw materials, proposed in the Finance Supplementary (Amendment) Bill 2018, giving a first blow to the new PTI-led government that introduced mini-budget to tap into revenue streams.

By Mehtab Haider
September 26, 2018

ISLAMABAD: Senate Standing Committee on Finance and Revenue on Tuesday rejected reduction in custom duties on raw materials, proposed in the Finance Supplementary (Amendment) Bill 2018, giving a first blow to the new PTI-led government that introduced mini-budget to tap into revenue streams.

The Pakistan Tehreek-e-Insaaf- (PTI) led government, in the min-budget, proposed reduction in custom duties on 34 raw materials for export-oriented industries.

Chairman of Senate Standing Committee on Finance Farooq Naek decided for voting on the issue of reduction in custom duties on 34 selected items after a heated debate between treasury and opposition benches. The opposition rejected the proposal with simple majority as three senators, namely Haroon Akhtar, Mussadiq Malik and Sheikh Mohammad Akram voted against the proposal, while senators Mohsin Aziz and Sheikh Ateeq voted in favour.

Senator Malik argued that he would raise the question of cost and benefit analysis. “Why the government did not select other raw materials,” he questioned.

Malik asked the representatives of the ministry of commerce and National Tariff Commission (NTC) to share revenue impact of each item and also estimate benefits for exports.

Member NTC Robina Ather told the committee that they had done cost and benefit analysis before forwarding proposal to the Federal Board of Revenue (FBR) for reducing custom duties on 545 items.

Director General Trade of Ministry of Commerce Mohammad Ashraf told the committee that the ministry and FBR agreed to reduce custom duties on 484 items; of them, custom duties on 185 items were brought down in the budget 2018/19, while the government proposed reduction in custom duties on 34 items out of remaining 299 items in the latest supplementary bill.

Ashraf said Pakistan’s exporters could not compete with China mainly because of lack of competitiveness and one of the major reasons for increased cost of doing business is higher input cost.

Senator Malik said the government initially promised to provide cost benefit analysis of the move to committee members, but later it backtracked.

PM’s Advisor on Revenue Hammad Azhar said no one could give judgment on how much the reduction in custom duties would benefit exports. “No algorithm has been invented to do such an analysis.”

Senators from opposition benches could not be convinced even after heated debate for around one and half hour.

Senator Haroon Akhtar deplored that he might not join any government in future because now the National Accountability Bureau was planning to investigate about changes in tax slabs introduced by the last government without considering that with introduction of third-tier the revenues reached close to Rs95 billion.

Two senators belonging to opposition benches senators Haroon Akhtar and Mussadiq Malik gave really tough time to ruling PTI’s team to defend the mini-budget.

The senate panel recommended reduction in income tax rate for highest slab in the mini-budget in which tax rate for non- salaried class was proposed to be reduced to 25 percent from 29 percent and for salaried class to 20 percent from 25 percent.

Advisor to PM on Revenue and FBR’s team opposed the proposal to slash income tax for salaried and non-salaried classes in each category by five percent. FBR’s Member Inland Revenue Policy Mohammad Iqbal strongly opposed the reduction in each category and stated that it would cause reduction in collection by 50 percent.

The committee approved the FBR’s proposal for increasing withholding tax on non-cash banking transaction to 0.6 from 0.4 percent.

On hike in federal excise duty on imported vehicles of 1,800cc and above to 20 percent from 10 percent, senator Haroon Akhtar said the local manufacturers might increase their prices in the local market.

The FBR’s Member Inland Revenue policy said the FBR is expecting to collect Rs2.5 billion with hike in federal excise duty on imported vehicles.