Govt proposes sharp cuts on 600 raw material tariff lines

Published June 8, 2021
The National Tariff Commission has submitted to the finance ministry a report that shows that tariff rationalisation plan of the government has led to industrial growth in the country. — Reuters/File
The National Tariff Commission has submitted to the finance ministry a report that shows that tariff rationalisation plan of the government has led to industrial growth in the country. — Reuters/File

ISLAMABAD: The government has approved hefty cuts including exemptions on raw materials under 600 tariff lines to boost import substitutions of consumer industries and promote exports from traditional and non-traditional sectors.

The decision will be announced in the budget 2021-22. There are also several other tariff lines that will be considered for lower duty reduction. In the budget 2020-21, the government has reduced tariff on 2,000 tariff lines.

Ahead of the next budget, the National Tariff Commission has submitted to the finance ministry a report that shows that tariff rationalisation plan of the government has led to industrial growth in the country. Exemption of duty on raw materials leads to its bulk import and subsequent exports of those industries.

As a result of this at sector level, exports of textile, articles of wood, rubber, plastic, glass, metal, chemicals and electrical appliances are significantly effected by change in intermediate input tariffs.

The study reveals that 1pc decrease in tariff leads to an increase in import volume by 2.8pc. Similarly, the price of raw materials (unit value) decreases by 0.6pc with a 1pc reduction in tariff at import level.

The government withdrew 3pc customs duty (CD) and 2pc additional customs duty (ACD) on import of jute fibre, a raw material, in 2019-20. As a result of the rationalisation, import value of jute fibre increased to $50.2 million in 2020-21 from $30.7m. The export of jute fabric rose to $7.8m in 2020-21 from $0.013m in previous year. It clearly establishes a link between tariff reduction and its subsequent increase in exports.

The nitrile-butadiene rubber (NBR) is used in industrial gloves. The government exempted 3pc CD, 2pc ACD in 2019-20. As a result, the import value of NBR increased to $6.6m in 2020-21 from $4.1m previous year. The exports of industrial gloves reached to $92.4m in 2020-21 from $67.4m in 2018-19.

The government exempted 3pc CD, 2pc ACD on wood pulp a raw material used in paper and paper board. The import value of the raw material increased to $8m in 2020-21 from $6m previous year. And the export of finished product paper and paper board reached $3m in 2020-21 from $0.7m in previous year.

The government exempted 3pc CD and 2pc ACD on import of tyre cord, a raw material used in the manufacturing of motorcycle tyre, in 2019-20. The import value of the raw material reached $18.3m in 2020-21 from $13.9m in previous year. The export of motorcycles tyre rose to $9.65m in 2020-21 from $4.03m in 2018-19.

Similarly, the government exempted 3pc CD and 2pc ACD on natural rubber a raw material used in manufacturing of footwear. As a result, export of footwear increased to $28.058m in 2020-21 from $20.851m in the previous year. The growth was also seen in quantity terms.

The 20pc CD, 7pc ACD and 5pc regulatory duty (AD) was abolished on glass boar, a major raw material of LCD and LED in 2019-20. The LCD and LED units reached 59,990 units in 2020-21 from 7,452 units in the previous year. It clearly reflects the impact of tariff rationalisation.

The government has done away with 7pc ACD, 5pc RD and reduced CD from 20pc to 5pc on import of polymers of ethylene, non-woven fabric, raw material used in diapers. As a result, import value of diapers reached $50.293m in 2020-21 from $13.550m the preceding year. The growth was also seen in quantity as well.

Palm stearin and tallow raw materials used in manufacturing of toilet soap. The government abolished 2pc ACD and reduced CD to 5pc from 11pc on these raw materials. As a result, production of toilet soaps increased to 200,000 tonnes in 2020-21 from 155,000 tonnes in 2018-19. The export of toilet soaps increased to 16,000 tonnes in 2020-21 from 8,000 tonnes in 2018-19. Pakistan is one of the major supplier of toilet soap to European Union.

Published in Dawn, June 8th, 2021

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