Regulatory duties

Published October 19, 2017

THE imposition of regulatory duties on nonessential imports is a sound idea in principle and shows that the government is mindful of the growing current account deficit.

However, similar rounds of duties in the past have failed to contain the problem.

This is the third time the government is resorting to regulatory duties.

Although the size and scope of the present round is bigger than previously, the fact that we have a third round at all is sufficient indication of the larger futility of this measure.

The first round of regulatory duties in late 2015 was on some 287 items, and the increases were meagre in comparison to the present case, with duty increases from 5pc to 25pc.

The second round came in the 2017 budget, when coverage was smaller but the duty increases were up to 60pc on some imported vehicles, particularly sports utility ones, with smaller increases of up to 25pc on imported and processed eatables.

It is not clear how much these duties contributed to any increase in revenue collection, but the current account deficit and the import of nonessential items has continued unabated.

In the previous year, they contributed 28pc to the overall increase in imports, whereas in the last fiscal year the contribution had risen to almost half.

Repeated resort to these duties as a means to curb the current account deficit shows that the government is running out of options in its toolkit to tackle this growing problem.

With this being its last year in power, and hobbled as it is by its legal and political entanglements, it is unlikely that it will be able to come up with a more robust plan of action in the near future.

So if this round of duties fails to contain the growth of nonessential imports, which is likely since the demand for these products is largely inelastic to price as they serve elite requirements, then more drastic action will become necessary closer to the end of the government’s term, when it will probably be further hobbled by its difficulties.

It is understandable that resort to these measures at a time when the twin deficits — on the fiscal and external side — are both increasing, but it is time for stakeholders to start bracing themselves for a more disorderly adjustment down the road.

Published in Dawn, October 19th, 2017

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