KARACHI, Feb 23: The World Bank wants further improvement in Pakistan's tariff reforms and has proposed reduction in tariff peaks, removal of what is being called discriminatory excise and taxation and to keep on the elimination of SROs.
Philip Schuler of the development group of World Bank has carried out a study on "Tariff Rationalization". He presented his study at business leaders meeting on Saturday at the Export Promotion Bureau, which was chaired by State Minister Tariq Ikram.
He found Pakistan's tariff structure, even after the reforms, discretionary and distorted. He strongly pleaded to keep tariff schedule, the main taxation instrument for achieving the transparency, to "eliminate the influence of powerful lobbies".
Pakistan's tariff rationalization during the last few years has been taken up under the World Bank and the IMF's Structural Adjustment Programme, which aims at liberalization of trade and to integrate it with world trade system.
Mr Schuler has taken a hard view on the issuance of SROs and termed it non-transparent, discretionary and discriminatory. He observes increase in tariff dispersion in many industries and product categories. "Dispersion reduces economic welfare, increases incentives for protectionist lobbying and creates anti-export bias," notes the study.
The SROs are issued to grant tariff exemptions on imports. These are usually area and industry specific, offering protection to certain government and non-government institutions and national projects of strategic importance or even persons.
The World Bank wants a systematic elimination of SROs to replace exemptions of high rates of taxes with uniform low rates. This would reduce the scope of discretions in granting exemptions.
The study, however, is silent on the discrimination being practised in the existing system that shows bias towards foreign investors by allowing them duty free import of machinery and equipments in power and energy sectors and in certain other areas. Pakistani investors are subjected to five to 10 per cent duty on imports of their projects.
Federation of Pakistan Chambers of Commerce and Industry vice-president Engineer M.A. Jabbar drew Philip Schuler's attention towards discrimination against national investors and asked him to review his study again and incorporate this particular feature into the study and that he should propose a same treatment for Pakistan and foreign investors.
Quite a few SROs are issued to remove this discrimination in the existing tariff structure, Mr Jabbar said, seeking an amendment in the tariff structure to ensure same treatment to national and foreign investors.
The FPCCI leader also noted certain discrepancies in the World Bank study and proposed the author to make suitable corrections before making a final recommendations.
The World Bank study said the exemptions not only discriminated between industries and importers, it also cause a revenue haemorrhage. He points out foregone revenue of more than Rs13 billion on import of motor vehicles, Rs4.92 billion on import of boilers, Rs1.66 billion on import of electrical machinery and equipment, Rs1.21 billion on iron and steel and Rs1.03 billion on organic chemicals.
Tariff peaks were noted in case of motor cars and edible oil, and study proposes to bring all the tariff rates into normal slabs. The suggestion is to replace high tariff rates with revenue equivalent excise taxes on motor vehicles.
It also suggests to convert the specific rates to ad valorem. Mr Schuler urged the government to maintain liberalization policy and added any reversal would have implications on trade and economy.