Latest news with #AdditionalCustomsDuties
Business Recorder
4 days ago
- Business
- Business Recorder
MoC unveils NTP to narrow trade deficit
ISLAMABAD: The Ministry of Commerce (MoC) has unveiled its National Tariff Policy (NTP) 2025–30, already approved as part of the federal budget. The policy aims to stimulate export growth of 10–14%, while imports are expected to grow by 5–6% — a slower pace intended to narrow the trade deficit. To establish a benchmark for tariff rationalization that is both transparent and comparable, the policy takes into account existing tariff structures in regional economies. The NTP 2025–30 targets a simple average tariff rate of 9.7% by FY 2029–30, implying a more than 20% annual reduction in the first two years, followed by a 5–10% annual reduction in the subsequent years. PM orders urgent overhaul of National Tariff Commission The NTP 2025-30 sets a target of achieving a simple average tariff of 9.70% by the terminal year 2029-30. This corresponds to about more than 20% annual decline in the first two years and a 5-10% annual decrease in subsequent years. This will be done by taking a comprehensive approach that encompasses (1) Readjustment of CD slabs to 4 slabs (0%,5%,10%, &15%) from the existing 5 slabs in 5 years (2) Reduction in CD to a maximum of 15% in 5 years (3) Elimination of RDs in 5 years (4) Elimination of ACDs in 4 years and (5) Phasing out of 5th Schedule in 5 years The reduction in tariff rates will bring the trade weighted average from the current 10.6% to below 6% in a period of 5 years. The current tariff structure follows a cascading principle. There are 5 slabs i.e.0, 3, 11, 16, and 20 with some peaks and specific rates. The uneven spread in tariff slabs or tariff escalation not only inhibits industrialization but also diversification. To simplify tariff structure and remove uneven spread between tariff slabs, in the first year, the current tariff slabs of 0%, 3%, 11%, 16% and 20% will be adjusted as 0%, 5%, 10%, 15% and 20%. Peaks in tariffs above 20%, mainly in the auto sector, will also be reduced gradually. Over the last 15 years, ACD and RD in addition to Customs Duty (CD) have been used as a tool for revenue enhancement. As a result, the number of products subject to ACD and RD has increased manifold. Out of a total of 7,589 tariff lines, around 7,476 tariff lines are subject to ACDs, and 1,996 tariff lines have been subject to RDs. Excessive use of Additional Customs Duties (ACDs) and Regulatory Duties (RDs) in addition to already high Customs Duties (CDs) has not just made the tariff structure high, complex, and protective but unfair, non-transparent, and prone to elite capture. All ACDs will be eliminated gradually in the next 4 years. Few products at 35% CD are subject to Auto sector policy (AIDEP 2021-26), therefore, the auto sector ACDs will be eliminated gradually from July 1, 2026. RDs are mostly serving the purpose of raising revenues and providing extra protection to already protected industries. Moreover, the ad-hoc imposition of RDs over time has resulted in overall discriminatory tariffs, which is evident from high dispersion in RD rates on similar products. First, the RD rates will be harmonized as lowest on raw material, moderate on intermediate and capital goods and highest on consumer goods and will be placed in slabs of 0%, 5%, 10%, 15%, 20%, 30%, 40% and 50%. Moving forward, the following schedule will be followed to eliminate RDs in 5 years. The rates are indicative and actual RD rates will be adjusted in the same range (indicated against each year) by the Tariff Policy Board and the government on year-to year basis. The existing RDs slabs will be completely eliminated in 5 years, keeping in view the annual targets for reduction in RD rates. The 5th Schedule of the Customs Tariff provides concessions or exemptions to certain domestic industries. Starting from a few products in 2013, the number of products claiming concessions or exemptions under the 5th schedule has increased manifold during the last few years. It consists of a long list of products divided into different parts. In FY 2023-24 the 5th Schedule consists of eight parts, each part contains different tables for different types of products. However, what makes the 5th Schedule more complex is the various conditions attached to the listed products. The product specific conditions under the 5th schedule require a wide range of documentation and paperwork. This not only gives huge discretionary powers to EDB and IOCO but also increases cost of compliance. Moreover, as most of the concessions are available only to specific manufacturers, these conditions are seen as restrictive and biased towards large businesses and manufacturers. Small businesses that cannot incur costs for attaining certificates or approvals and related paperwork have to purchase inputs from commercial importers that import at MFN rates. The tariff structure under the Fifth Schedule is different from general tariff structure. There are two ways in which tariffs under the Fifth Schedule are different from the general tariff structure. First, the 5th Schedule has custom duty rates beyond the slabs applicable to the 1st Schedule. Second, most of the products in the schedule are exempt from Regulatory Duty (RD) and Additional Custom Duty (ACD) that are otherwise applied in the 1st Schedule of Customs Act, 1969. Resultantly, as the number of exemptions and concessions under the 5th Schedule has increased over the years, its burden on the federal exchequer is also growing exponentially. The largest portion of customs duty expenditure for FY 2022-23 is given under Fifth Schedule amounting PKR 190.688 billion registering a growth of 10.24% compared to 2021-22. In view of distortions in tariff structure created by the 5th Schedule, all the products/tariff lines will transition from 5th Schedule to 1st Schedule in next 4-5 years in a phased manner. In this process some concessions will be withdrawn, and some concessions will be generalized (made available to all: (i) the products that have virtually no concession under the 5th Schedule shall be transferred to the 1st Schedule;(ii) products with concessionary rates will be transferred to the 1st Schedule either under MFN rate or under the slab closest to the concessionary rate; (iii) products that have specific conditions because there is no product-specific tariff heading in the 1st t Schedule will be moved to the 1st Schedule by creating a new tariff heading; (iv) products falling under the tariff heading 'others' will be transferred from the 5th Schedule to 1st Schedule by creating separate headings with the description as given in the 5th Schedule; and ( v) Minimally used concessions will be withdrawn. In line with the principles and objectives of this policy, the auto sector tariffs will also be rationalized to enhance competitiveness, productivity and consumer welfare including removing any quantitative restrictions on import of old/used vehicles subject to quality and environmental standards and differential tariff structure. The Auto Industry Development and Export Policy (AIDEP) 2021-26 is valid till June 2026 and the new auto policy will be introduced from first July 2026 where a substantial reduction on duties related to the auto sector will be carried out including review of SRO 655 (I)/2006 dated 22-Jun-2006, SRO 656(I)/2006 dated 22- Jun-2006, SRO 693 (I)/2006 dated 1-Jul-2006, elimination of all ACDs and RDs and reduction in the CD rates. Various models including Macro model, Export Forecasting Model, Global Trade Analysis Project (GTAP) Model import tariff revenues show a loss of about PKR 500 billion in static calculations however, considering all other factors ie, increased demand, economic growth, transparency, decrease in under invoicing, smuggling, compliance cost etc., GTAP calculations indicate a positive impact on revenues (7-9%). The major impact of tariff reforms will be on exports. GTAP calculations show that exports will increase by (10-14%); imports will also increase (by 5-6%) but at a slower rate than the increase in exports thereby improving the trade deficit. Resources will move to more efficient and productive sectors as production in export-oriented sectors will pick up. Industry will grow, net employment will increase, and investment will strengthen. Reduced tariffs would not only allow the availability of cheap raw materials and intermediate but would also be a key factor in reducing the imported inflation, especially for food products. Copyright Business Recorder, 2025
Business Recorder
13-06-2025
- Business
- Business Recorder
Tariff cuts to cause Rs200bn revenue loss
ISLAMABAD: The tariff rationalization including changes in import duties slabs, abolition/reduction in customs duties, Additional Customs Duties (ACDs) and regulatory duties (RDs) in budget (2025-26) will result in revenue loss of Rs 200 billion in 2025-26. Break-up of revenue loss in 2025-26 revealed that the reduction in rates of ACDs would cause revenue loss of Rs 126.7 billion. Changes in RDs would cause revenue loss of Rs 57.7 billion and revision in rates of customs duties would have revenue implications of Rs 15.6 billion. The Federal Board of Revenue (FBR) has estimated to collect huge revenue of Rs 56 billion from increase in tax from profit on debt during 2025-26. Massive tariff overhaul unveiled According to the revenue impact of taxation and relief measures (federal budget 2025-26) prepared by the FBR, previously profit on debt was taxed at 15 percent as final discharge of tax liability for individuals earning less than Rs5 million. It is now proposed to increase tax rate on profit on debt from bank deposits to 20 percent to bring it closer to the effective rates on other income sources taxed at normal rates, with highest slab bearing tax rate of 35-45 percent. This tax would now be treated as 'minimum tax liability' ensuring it cannot be used to avoid standard tax obligations. Break-up of new taxation measures revealed that the FBR has estimated to collect Rs 26 billion from taxation of e-commerce/digital transactions during 2025-26. The rate of deduction for payments through digital means and cash on delivery would have positive impact on revenue collection. It is proposed to levy 1 percent of the gross amount if payment is less than Rs 10,000; 2 percent of the gross amount if payment is less than Rs 20,000 and levy 0.25 percent of the gross amount if payment is more than Rs 20,000. For cash on delivery, the tax rate will be 0.25 percent of the gross amount paid for all electronic goods; the rate will be 2 percent of the gross amount paid for supply of clothing articles and one percent of the gross amount paid on supply of goods other than electronic goods and clothing goods. According to the revenue impact of taxation and relief measures prepared by the FBR for 2025-26, the FBR will generate revenue to the tune of Rs 20 billion from imposition of sales tax on solar panels during next fiscal year. The imposition of 10 percent sales tax on erstwhile tribal areas would generate additional revenue of Rs 30 billion in 2025-26. The FBR has estimated to generate revenue of Rs 10 billion from tax on income from Coupon Washing. It has been proposed that the advance tax under section 151A shall be deducted on the profits arising from the trading of Pakistan Investment Bonds (PIBs) and T-Bills across the counters before the date of maturity. The reintroduction of tax credit for housing loan for small residences will have negative impact on FBR's tax collection during next fiscal year. Similarly, the removal of Federal Excise Duty (FED) on immovable properties will also have a negative impact on tax collection. The rationalized dividend tax rates on mutual funds would generate additional revenue of Rs7 billion in the national exchequer. The removal of less than 18 percent sales tax rate on motor vehicles would generate revenue of Rs7 billion. The 12.5 percent concessional sales tax on hybrid and less than 1800cc cars was meant to support middle-income buyers, but did not deliver the intended benefits due to maintenance of high prices by car manufacturers. Now, it is proposed to withdraw the concession, applying standard 18 percent sales tax on such vehicles. The FBR will generate Rs2 billion from tax at 5 percent rate proposed on pension income exceeding Rs10 million for individuals less than 70 years old. The increase in advance tax from 10 percent to 15 percent on fee for offshore digital services would have positive impact on revenue collection of the FBR. On the other hand, the FBR has calculated a positive revenue impact of 7-9 percent in overall tax collection considering all factors of customs tariff rationalization i.e. increased demand, economic growth, transparency, decrease in under-invoicing, smuggling, compliance cost and Global Trade Analysis Project (GTAP) calculations with increase in exports by 10-14 percent. Copyright Business Recorder, 2025
Business Recorder
21-05-2025
- Business
- Business Recorder
More luxury items set to attract sales tax in upcoming Pakistan budget
ISLAMABAD: The government is planning to expand the list of luxury items on which a higher rate of 25 percent sales tax would be applicable on the import and local supply stages in the federal budget (2025-26). The government will amend SRO 297(I)/2023 or introduce a separate Schedule in the Sales Tax Act through Finance Bill 2026. Sources said that the list of items would be expanded by including more home-appliances, tiles/wall papers, expensive wristwatches and many other items. This is a revenue generation measure and also compensates revenue loss on account of reduction of customs duties, regulatory duties and Additional Customs Duties (ADCs) in budget (2025-26). RD slapped on 657 luxury goods: 2pc ACD imposed on import of 2,200 items Under SRO297 of 2023, the Federal Board of Revenue (FBR) had imposed 25 percent sales tax on the import and local supply of luxury items including aircraft, ships, jewellery, cosmetics, cigarettes, high-end mobile phones, imported food, decoration items, certain categories of vehicles and other luxury goods. The sales tax was raised from 17 percent to 25 percent on 33 categories of goods covering 860 customs tariff lines. According to an SRO 297(I)/2023, the federal government has directed that the sales tax shall be charged, levied and paid at the rate of 25 percent of the value of the goods imported and their subsequent supply or the retail price, as the case may be and the sales tax shall be charged, levied and paid at the rate of 25 percent of the value of the supply of specified goods. Copyright Business Recorder, 2025
Business Recorder
21-05-2025
- Business
- Business Recorder
More luxury items set to attract ST in coming budget
ISLAMABAD: The government is planning to expand the list of luxury items on which a higher rate of 25 percent sales tax would be applicable on the import and local supply stages in the federal budget (2025-26). The government will amend SRO 297(I)/2023 or introduce a separate Schedule in the Sales Tax Act through Finance Bill 2026. Sources said that the list of items would be expanded by including more home-appliances, tiles/wall papers, expensive wristwatches and many other items. This is a revenue generation measure and also compensates revenue loss on account of reduction of customs duties, regulatory duties and Additional Customs Duties (ADCs) in budget (2025-26). RD slapped on 657 luxury goods: 2pc ACD imposed on import of 2,200 items Under SRO297 of 2023, the Federal Board of Revenue (FBR) had imposed 25 percent sales tax on the import and local supply of luxury items including aircraft, ships, jewellery, cosmetics, cigarettes, high-end mobile phones, imported food, decoration items, certain categories of vehicles and other luxury goods. The sales tax was raised from 17 percent to 25 percent on 33 categories of goods covering 860 customs tariff lines. According to an SRO 297(I)/2023, the federal government has directed that the sales tax shall be charged, levied and paid at the rate of 25 percent of the value of the goods imported and their subsequent supply or the retail price, as the case may be and the sales tax shall be charged, levied and paid at the rate of 25 percent of the value of the supply of specified goods. Copyright Business Recorder, 2025
