ISLAMABAD: The coalition government, led by PML-N, has partially approved recommendations of the Tariff Policy Board (TPB) to adjust solar sector duties in the upcoming budget, Dawn has learned from knowledgeable sources in the Finance Division.

However, a proposal to further reduce duties on the steel sector has been rejected. The Federal Board of Revenue (FBR) strongly opposes proposals to eliminate additional customs duties on raw materials.

The TPB, led by Minister for Commerce Naveed Qamar, is the recommending body to make changes in tariffs to the Ministry of Finance. The decision will be announced in the budget 2023-24 as part of the package initiated three years ago to remove all duties on raw materials and semi-finished products used in exports.

Well-placed sources told Dawn on Wednesday that the finance ministry has agreed to rationalise duties on the value chain of the solar industry, as part of a government initiative to promote alternative energy sources.

Proposals to eliminate customs duties on raw materials rejected

The TPB has already conducted a study on the sector. The duty rationalisation will cover components used in solar panels, batteries, chargers, etc.

One of the major studies of TPB on the iron and steel sectors suggested drastic changes in tariff rates. However, this proposal was dropped by the FBR for consideration in the budget on the plea that it involved a potential revenue loss of Rs20 billion. Similarly, the finance ministry also dropped the proposal of further reducing or abolishing ACDs on raw materials in the budget.

The TPB also proposed rationalisation of duty on 60-80 tariff lines of individual industries, which was agreed to be considered in the budget, the sources said.

Three years ago the PTI government initiated a tariff rationalisation process which will be completed by FY24 to completely abolish duties and taxes on raw materials and semi-finished products to promote exports.

The process of removing duties was slowed down in the outgoing fiscal year, with only around 100 tariff lines approved. The goal of the policy was to eliminate duties and taxes on raw materials and components to reduce the cost of local production.

In the budget 2021-22, the PTI government exempted duty on 600 tariff lines, besides a reduction in duty on several other tariff lines, while in 2020-21 the duty was reduced on 2,000 tariff lines.

The finance ministry is also working on a proposal to achieve revenue targets of Rs9,200bn in 2023-24 by enhancing import tariffs through upward adjustment in import duty slabs.

As most of the consumer goods are already subject to heavy regulatory duties, energy prices are not expected to fall and food prices are expected to rise, any increase in tariff would only hit the import of raw materials and intermediates (33pc of total import bill) and capital goods (13.2pc).

Regulatory duty was introduced in 2007 on 317 tariff lines as a temporary measure and has gone up to around 2,000 tariff lines at the rate of 2–90pc. Similarly, additional customs duty introduced in 2013 at the rate of 1pc has gone up to 7pc covering 5,177 tariff lines. Pakistan has the highest average tariff rates in the world.

Published in Dawn, June 8th, 2023