To deter imports, additional duties on consumer items will remain in place until March.
ISLAMABAD: The central bank’s decision to forbid the provision of foreign currency for imports has not had the same impact as the federal cabinet’s decision to extend the timeframe for up to 100% regulatory tariff on a variety of consumer items for 40 days.
The action was taken in response to a review of the current restrictive import regime by the State Bank of Pakistan (SBP), which was in contravention of agreements reached with the International Monetary Fund (IMF).
The choice to further prolong the time frame for additional duties beyond the six-month term that was first allowed brings attention to the inconsistent nature of policy, which deters investors.
The federal cabinet authorised an extension of the additional regulatory duty and customs charge until March 31 on mobile phones, new and used automobiles, household appliances, meat, fish, fruits, and vegetables, footwear, furniture, and musical instruments through the distribution of a summary.
The cabinet’s August 2022 resolution required that these higher rates terminate on February 21. Also, until the end of March, additional customs duties on autos of up to 28% have been extended.
Prior to the SBP’s decision to prohibit the opening of letters of credit (LCs) for imports or the availability of foreign cash, it was anticipated that the government would not further extend the duties.
The Tariff Policy Board convened an emergency meeting on Saturday and decided on a 40-day extension after the Federal Board of Revenue (FBR) formally requested one at the last minute.
Although the FBR claimed to the Tariff Policy Board that the regulatory tariff had reduced imports of products by 50%, the SBP’s instructions to the commercial banks were actually to blame.
For the preceding six months, the majority of the commodities that were cleared were those that had previously arrived at ports or for which LCs had been established but stalled because of an earlier import prohibition. In August of last year, the government lifted the prohibition and replaced it with higher tariffs.
On those products, the FBR made roughly Rs 15 billion in revenue, primarily from the import of opulent cars that managed to get by the system in such a time of need.
The IMF is opposed to any import restrictions, including the instructions given by the central bank to the commercial banks to exclusively provide foreign currency to a dozen specific industries.
In an effort to resolve one of the problems that came up during the Pakistan-IMF review discussions, the central bank will revoke these directives, likely this week. Importation limitations put further strain on supplies and contributed to a rise in prices.
The SBP has received advice from the IMF to lift import restrictions and revoke its directives issued to commercial banks. The levy had been applied in the 10% to 100% range, but it had a much smaller impact on imports than $1 billion in the previous fiscal year.
According to data provided by the SBP, the imports between July and January of the current fiscal year decreased by 21% to $33.5 billion as a result of limitations imposed by the central bank. As a result, in the first seven months of FY23, the current account deficit decreased 67% to $3.8 billion.
The IMF, however, considers this improvement to be unsustainable and predicts a rebound in imports if these restrictions are lifted. It holds that the import level should be decided by the dollar price rather than any administrative restraints.
The duties on roughly 790 tariff lines were extended by the federal cabinet. The government has imposed regulatory duties ranging from 10% to 100% and additional customs duties ranging from 7% to 28% on 49 tariff lines of vehicles.
Previously free from the regulatory duty up to 1,000cc new and used cars are now subject to a 100% duty, raising the total import taxes to 150%.
Similar to this, the import taxes on vehicles that were previously 77% are now being cleared at 169%. The government has increased regulatory taxes by 85% and customs taxes by 7%.
The priciest vehicles, both sports and those with large engines, have not been subject to a lot of taxation. Prior to the import stage, these vehicle classifications were liable to 197% of the total duties. Now, the government has increased customs duties by 28% but regulatory duties by only 10%.
A 49% regulatory charge is imposed on toilet fixtures and chocolates. A cell phone costing more than $500 is subject to a levy of Rs. 44,000 and a sales tax of up to 25%.