ISLAMABAD: After incurring a loss in duty collection over the past few years, the government is trying to minimise the impact of free and preferential trade agreements by withdrawing duty exemptions on the import of certain items in the next fiscal year.

The net revenue impact of preferential trade deals in 2016-17 is estimated to be Rs41 billion.

These trade deals were concluded probably in haste as they benefit the trade partners in most cases. Trade data also confirms that these agreements have led to negligible gains in exports while increasing imports notably.

For example, Pakistan lost over Rs6bn because of the duty-free import of 24.3 million mobile sets mostly from China in 2016-17.

Official data shows the Federal Board of Revenue (FBR) collected only Rs428m on the import of 1.7m mobile sets, which were sourced from non-FTA countries. The flat rate of duty was Rs250 per mobile set.

Revenue impact of preferential trade deals in 2016-17 is Rs41bn

To bring it under the tax net, the FBR has imposed a regulatory duty at the rate of Rs250 per mobile set that will now be applicable to imports from all countries even if they are covered by trade deals.

Earlier, almost all types of telecom equipment were cleared at zero per cent duty under the FTA. Now a regulatory duty of 9pc has been imposed on telecom equipment.

Despite an adverse impact on the economy, the Ministry of Commerce intends to sign FTAs with Turkey and Thailand.

“We have identified several products that are covered under preferential trade agreements and hurt the local industry,” an official source told Dawn.

The regulatory duty regime is supposed to serve the dual purpose: mobilise revenue and protect local manufacturers.

The import of synthetic filament yarn is subject to a 5pc duty under the South Asia Free Trade Area (Safta). The normal duty on synthetic filament yarn was 11pc. To incentivise local production, a regulatory duty was imposed at the rate of 5pc.

Metalised yarn is importable at 5pc under Safta. The normal rate of duty is 11pc. A regulatory duty of 5pc was imposed on metalised yarn to provide protection to its local producers. Similarly, the duty on its raw material, uncoated polyester film and aluminium wire, was reduced to 11pc from 20pc.

Under the FTA with Sri Lanka, the import of sacks and bags is exempted from customs duty. The normal customs duty on the import of sacks and bags is 20pc. To restrict flows under the FTA, the government has imposed a 10pc regulatory duty on it.

Similarly, parts of electro-thermic domestic appliances, like coffee-maker, tea-maker, dryers and irons, are imported under the FTA at reduced customs duty of 3pc and zero per cent.

However, all these finished products imported from non-FTA countries are subject to 20pc customs duty and 15pc regulatory duty.

To benefit from the FTA, commercial importers prefer to import these appliances in semi-assembled condition as partial shipments of parts. To remove the anomaly, a regulatory duty of 10pc was imposed on parts, excluding imports by local assemblers/manufacturers of these items.

The rate of regulatory duty on betel nuts has been increased to 25pc from 10pc while that on betel leaves stands at Rs200 per kilogram. This decision is aimed at discouraging imports under the FTA.

Published in Dawn, June 6th, 2017