Ministry of Commerce has refused to take the responsibility for growing taxes on imported goods. The ministry quickly laid all blame on tax authorities, saying Federal Board of Revenue (FBR) has extended the list of items under tax.
Anjum Asad, Additional Secretary Commerce, in a Senate Standing Committee’s meeting said,
The Federal Board of Revenue (FBR) deviated significantly from the list of items that the commerce ministry shared with it for the levy of regulatory duties on non-essential items to curb imports.
He also explained that final list of items was not shared with the ministry. On this, FBR responded by saying that the list was shared with Younas Dagha, Commerce Secretary.
FBR recently imposed heavy taxes on 356 items. Out of these, 136 items have been brought under tax for the first time including raw materials.
The Revenue Board further increased taxes on remaining 220 items that were already under heavy regulatory duties. Imposition of taxes on low import value items suggests FBR’s move is an attempt to amass revenue instead of bringing imports down.
27 items of worth just $1.3 billion have been taxed for the first time while duty on 31 goods having value $1.9 billion has been increased, suggesting that these items already had a low impact on overall imports.
Senate Standing Committee Chairman Saleem Mandviwala also recognized this issue and asked FBR not to target essential items.
Furthermore, FBR even applied duties on items whose imports significantly reduced in the first quarter. Light fittings’ imports reduced by 68% but regardless of that the Revenue Board taxed the item.
FBR imposed heavy duties on these items in an attempt to reduce the trade deficit. The imports during last fiscal year were of worth $53 billion.
However, it seems that FBR failed to target the items that were contributing most to the trade bill. As per FBR documents, the items that have been taxed only amount to $820 million during the first quarter of current fiscal year.
At this pace, those items will only reach $3.3 billion at the end this fiscal year and FBR will only be able to cutback $400 million in imports as the Board can’t control the imports of tyres and other raw material.
FBR vs Commerce Ministry
As mentioned earlier, Commerce ministry says that the list wasn’t shared with them before it was made public, while FBR says the opposite. Trade Policy Expert of Commerce Ministry, Nadia Rehman, says;
The FBR did not show the final list to the commerce ministry’s technical team and we were told that if the list was made public before issuing the notification, this may create distortion in the market.
She said that the list provided by the FBR did not include all items that were going to be put under tax. According to her, air conditioner parts and accessories were added in the list later.
FBR also violated automobile policy as it imposed heavy taxes on all imported cars. This move may impact the foreign investments by companies that were looking to invest in the automobile industry through revised policy.
Increase in Prices
Thal Engineering seemed flustered from FBR’s move and said that 20% tax on rubber and plastic material would see an increase in cost production. The company’s representative said that these items are used in car manufacturing and increase of production cost could result in increased prices.
The Standing Committee has given FBR two weeks to go through the list again and remove essential items from it.