New policy to strip FBR of tariff setting powers

Updated November 20, 2019

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The federal cabinet has approved the first-ever National Tariff Policy (NTP) that seeks to shift focus of tariff setting towards promotion of trade, particularly exports, rather than revenue generation. — APP/File
The federal cabinet has approved the first-ever National Tariff Policy (NTP) that seeks to shift focus of tariff setting towards promotion of trade, particularly exports, rather than revenue generation. — APP/File

ISLAMABAD: The federal cabinet has approved the first-ever National Tariff Policy (NTP) that seeks to shift focus of tariff setting towards promotion of trade, particularly exports, rather than revenue generation.

The decision was taken during a cabinet meeting on Tuesday chaired by Prime Minister Imran Khan who directed the Commerce Division to begin implementation on the policy from budget 2021.

The power to charge tariffs and impose regulatory duties was also taken away from the customs department and placed with a special cell to be constituted under the Commerce Division.

Implementation will be done through a Tariff Policy Board (TPB) chaired by the Commerce Minister/Adviser, with Minister for Industries and Production, secretaries of finance, revenue, commerce, Board of Investment, the Federal Board of Revenue (FBR) chairman and National Tariff Commission as its members.

A Tariff Policy Centre (TPC) will also be created at the Ministry of Commerce, which will serve as the secretariat of the TPB.

National Tariff Policy to take effect from next budget

The detailed document of the new policy makes no mention of which sectors might be the winners and losers in the whole exercise, but it states clearly that the power to set tariffs will be taken away from the FBR which has used it more as a revenue measure than one aimed to promote trade and exports.

The document also blames the previous two governments — PPP and PML-N – for having used tariffs extensively to generate taxes instead of focusing on income tax collection for revenue.

As a result, the document continues, the economy de-industrialised with the share of industrial production going down from 26.4 per cent of GDP in FY2010 to 20.3pc in FY2019, and the share of exports going down from 13.5pc of GDP in 2010 to 7pc in 2019.

The new policy aims to rectify this by removing “the anomalies in the tariff structure and making it a reflection of trade policy priorities and enhancement of competitiveness through duty-free access to imported raw materials and promotion of investment into efficient industries through a predictable tariff structure, decided through an institutional mechanism,” the document states.

The NTP is based on seven principles, including maintaining vertical consistency through cascading tariff structures (increasing tariff with stages of processing of a product), providing time-bound ‘strategic protection’ to domestic industry during “the infancy phase”, promoting competitive import substitution through time-bound protection, which will be phased out to make the industry eventually competitive for export-oriented production.

Moreover, the tariff slabs will be simplified based on the principle of cascading; tariffs on raw materials, intermediate and capital goods will be gradually reduced; the additional customs duty and regulatory duties will be gradually reduced.

The difference in the rates of tariff for the commercial importers and industrial users of raw materials, intermediate and capital goods will be eliminated to provide a level-playing field to the SMEs through competitive access to essential raw materials; the nascent industry will be provided time-bound protection, which will cover the payback period.

In a major policy development, the TPB will be responsible for formulation, amendment and implementation of the NTP.

All proposals for levy, amendment or removal of tariffs including regulatory duties and customs duties will be examined at the TPC and after approval of the TPB will be submitted by the Commerce Division to the cabinet or parliament, as the case may be, for approval.

Published in Dawn, November 20th, 2019