ISLAMABAD, Nov 11: The reduction in import duties to 25 per cent in 2002-03 from 125 per cent in 1990-91 has resulted in massive reduction in the share of customs duties in the total federal revenue collection.

An official report compiled by Central Board of Revenue (CBR) showed that as a result of this tariff rationalization, the share of customs duty revenue in federal tax receipts has come down from 46 per cent in the year under review to only 15 per cent in 2002-03.

With the downward revision of customs duties the net collection from this head, relative to dutiable imports, declined from 72.7 per cent in the year 1990-91 to 15.8 per cent in financial year 2002-03. Similarly, the effective rate based on total imports also declined from 29.5 per cent to 9.8 per cent during the period under review.

The tariff rationalization was one of the conditionalities of the international financial institutions (IFIs) to reduce protection available to small industries in the shape of high tariff protections.

The most obvious impact of this rationalization was that domestic industry was exposed to unhealthy international competitions and dumping.

The CBR report, however, says this high level of protection not only generated gross inefficiencies in the system as the quality of the goods produced by the domestic industry suffered badly but it also became a major impediment to growth through its adverse impacts on exports and further industrialization.

On the other hand, the revenue loss emanating from this change was compensated from the introduction of consumption based tax in the shape of general sales tax. According to the report, GST was levied on all items at both domestic and imports stages, which also increased the burden on the consumers.