Budget 2019-20: FBR, NTC propose to abolish 5th Schedule

ISLAMABAD: While estimating the cost of tax concessions of the customs side up to Rs186 billion in first nine months (July-March) of the current fiscal, the Federal Board of Revenue (FBR) and National Tariff Commission (NTC) proposed to abolish the Fifth Schedule of Customs Act and phased withdrawal of Regulatory Duty (RD) and Additional Customs Duty (ACD) on imported items in the upcoming budget 2019-20. Both the senior officials of the FBR and NTC gave extensive briefing to the members of National Assembly Standing Committee on Finance and Revenues that met under chairmanship of Faizullah here at FBR’s headquarters on Monday.

The Chairman of the Committee Faizullah, who belongs to ruling PTI, was perturbed over the government's move for not taking the recommendation of the members of the Lower House of Parliament seriously and warned that they would resist such moves if made in future.

The FBR and NTC proposed to introduce fresh slab of zero duty on customs duty in the upcoming budget against the existing four slabs with rate of 3, 11, 16 and 20 percent. “The total cost of all required reforms on customs front will be standing at Rs90 to Rs100 billion,” Chairman Reform Committee on Tariff Rationalisation Dr Manzoor Ahmed told the National Assembly Standing Committee on Finance and Revenues.

The FBR’s Member Customs Policy Javed Ghani told the NA panel that the cost of exemption provided through Fifth Schedule was estimated at Rs74.669 billion, major SROs Rs55.593 billion, Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) Rs32.327 billion, export promotion schemes Rs10.052 billion and Chapter 99Rs 9.118 billion in first three quarters of the current financial year 2018-19. He said the FBR envisaged rationalisation principles for 2019-20 budget including incentives to local industry, reducing complexities of cascading principle where possible, relief to general public and export led growth.

Under the budget policy for 2019-20, FBR Member Customs Policy said the high tariff on import of non-essential and luxury goods would continue till trade balance improves significantly, lower duty structure on socially sensitive items like vegetable, pulses etc, complete rationalisation of regulatory duties in three years, once policy determining extent and period for tariff protection is in place, exemption schemes to be phased out and minimising concessions and exemptions regime i.e. size of the Fifth Schedule would be gradually reduced over a period of three years.

Customs tariff rationalisation policy for 2019-20 further revealed the sectors reviewed by the tariff rationalisation committees (TRCs) are chemicals and plastics, paper and paper board, textile sector, steel sector, machinery and capital goods and home appliances and mobile phone sector. The items under the Fifth Schedule were proposed to be brought into the First Schedule of the Customs Act in the coming budget. Around 400 tariff lines are availing exemption without any condition under Fifth Schedule of the Customs Act 1990 which should be brought into the First Schedule. The NTC proposed to introduce customs duty slab of zero percent in budget (2019-20) and reduce concessionary SROs, apply Free Trade Agreement (FTAs) rates where possible and implementation of the tariff reforms.

There is need to reduce tariff on raw materials and intermediary goods, immediately reduce customs duty to zero on raw materials and inputs not produced locally and keep level of nominal protection intact for domestic manufacturers for one year and then reduce gradually. He said the cascading principle included lower rate on raw material and highest rate on finished and consumer goods and in-between rates on intermediary products would be applied according to the nature i.e. whether the imported item is a value added raw material, semi-finished intermediary goods etc.

The NTC Member Mrs. Robina Ather informed the committee that the Prime Minister Imran Khan has given in-principle approval of the new National Tariff Policy. She said the NTC has conducted a huge exercise and reviewed over 7000 tariff lines of the Pakistan Customs Tariff. The new tariff policy would be presented before the federal cabinet meeting for approval.