Regulatory duties to increase revenue, not to decrease imports Listen

LAHORE: Government’s stopgap measures of slapping regulatory duties are unlikely to appreciably reduce imports until under-invoicing is stopped; although the government would be able to increase revenue in either case.

The Economic Coordination Committee of the cabinet imposed regulatory duties, ranging from 5 to 25 percent, on around 300 items, including smuggling-prone products on which duties were cut in the past to discourage smuggling.

It is essential that unnecessary imports should be curbed. But, to achieve this objective, government planners would have to deeply analyse the imports coming to Pakistan.

Imports could be divided into different categories. Some imports, such as crude oil, liquefied natural gas and edible oil are essential as their domestic production falls short of market needs.

Next come raw materials needed by local industry. These are crucial for operation of manufacturing sector. Industry creates numerous jobs on the strength of the raw materials.

The next category is that of machinery and equipment, which are necessary for establishment of new industries as well as creation of new jobs in the economy.

Discouraging imports in the above three categories is not in the interest of the country unless we start producing more crude and edible oils and indigenously start manufacturing raw materials.

The fourth category is related to finished products, which are not produced in the country, but are in demand. Such products include medicines, medical equipment and surgical implants. Pesticides and high-yielding hybrid seeds, which are not produced in the country, are needed to be imported to boost local production. Hence, they are not luxury imports.

Some finished products are imported despite that they are locally manufactured. Such goods include air conditioners, television sets, refrigerators, cotton yarn, fabric, artificial leather, tyres and tubes and ceramic tiles.

Since Pakistan has acquired technology to produce or assemble these products of global standards there is no justification in allowing free imports of such products.

Local industrialists claim that these products are heavily under-invoiced so importers pay levies lower than those paid by local manufacturers.

Since under-invoicing involves many vested interests, it is not possible to fairly tax such products.

Sales tax paid on local substitute of imported products should form the basis of determining the import value of under-invoiced prone products, which will eliminate under-invoicing.

The impact of this policy would be visible in three months in the shape of revival of several closed industries of the country and substantial job creation. There would be no price hike because those who import goods at lower than the actual value would unofficially pay the balanced amount.

Additionally, the measure would bring such imports down at least 90 percent as the imports with genuinely-quoted prices would then come in.

Currently, the importers indulging in under-invoicing save duties to boot out local products from the competition. Though imported products have lower cost, they are not so cheap that duties and sales tax on them would substantially be less than the sales tax paid by local producers.

Another category of imports consists of luxury items, such as processed foods, which are produced in Pakistan and usually used by the high-income group. Such imports should be subject to high regulatory duty and stringent quality control checks. This step would also boost agriculture production in the country and help farmers in getting better price for their produce.  The last category is that of luxury cars and cosmetics. Such imports should also be banned as they serve 2-3 percent of the richest segment of the society.

On the other hand, smuggling poses the gravest security risk to the country. If luxury cars could be smuggled into the country, then there is no possibility of stopping the import of arms and ammunition. Smuggling dens should be closed, border security enhanced and all smuggled items should be confiscated.