GOP RECTIFIES TAX ANOMALIES
While the government has been very prompt in rectifying the anomalies, it is also necessary to avoid such lapses in future
By SHABBIR H. KAZMI
Sep 06 - 12, 2004
One of the factors affecting the performance of manufacturing sector in Pakistan has always been the import tariff applicable on the raw materials and the finished goods. The disparity has become more pinching ever since the government has started reducing the tariff, particularly applicable on finished goods. Previously either the government did not allow import of finished goods or kept tariff on the higher side to protect the local industries. However, as the government was obliged to bring down such prohibitive duty rates and open up the markets, serious anomalies started appearing and affecting the local manufacturers.
The Federal Budget 2004-05 was also not an exception. The government announced tariff adjustments, which caused anomalies. However, it is heartening to note that the Budget Anomalies Committee not only completed its deliberations very quickly but also ensured issuance of relevant SROs and notifications. Some people may say that the government was prompt in rectifying the anomalies but others ask the question, why at all these anomalies appeared?
One may say that such anomalies were common in the past and if these also became evident this year it was normal. However, some of the critics say, "In the distant past preparation of budget was a very 'secret' job and trade and industry was hardly involved in the budget making process. As oppose to this, the present government claims to be very open in preparing budget in consultation with all the stakeholders. Therefore, if the process has been followed in letter and spirit such anomalies should have not appeared at all. Saying this, one should also appreciate the efforts of policy makers to rectify the situation as quickly as possible."
According to a cynic, "All of us must accept the fact that 'pressure groups' are present and fully operative in the country. They also have free access to power corridors and also have the ability to influence the decision makers. Therefore, these groups are often able to convince the policy planners to make a policy decision, which suits them the best but may hurt others. If the aggrieved/affected groups raise hue and cry some concessions are given but the interest of favourites is protected at the best."
However, some critics do not support this point of view. They say, "For a number of years the government has been following the policy of soliciting budget proposals from all the stakeholders. However, one can only say with deep regret that either the stakeholders do not bother to submit the proposals in time or the demands are made without realizing the adverse impact of their suggestions on other sectors/sub-sectors. Normally, the government rejects all such proposals and accepts only those which are supported by convincing arguments. Therefore, if trade and industry wishes its voice to be heard at the highest level it should always be supported by evidences."
After the announcement of current budget it was said that the government should have reduced the import duty on CKD kits used in the assembly of automobiles to bring down prices of cars etc. in the country. It was only one side of the coin. The other side, which was ignored completely, was that local manufacturers of components have invested not only huge amount and but have also been successfully meeting the enhanced demand. Any reduction in duty applicable on CKD kits would have affected them badly. It is highly deplorable that government intends to bring down automobile prices by allowing import of completely built units but hardly seems to be ready to abolish duties and taxes on raw materials being used in the manufacturing of components.
However, it is also important to note that if the government was serious in bringing down component cost, it should have reduced the tariff applicable on raw material. While the government should have been following cascading structure, ironically the difference in duty applicable on raw material and finished product is so meager that the local manufacturers' profit either become marginal or negative.
The government offers and also keeps on changing/adjusting duty drawback rates. It was decided that the government would follow 'No duty no drawback' regime but the policy was not followed. Billions of rupees of exporters are stuck and they also have to pay 'Speed Money'. While maintaining collection and disbursement infrastructure is a burden on national exchequer, exporters often emerge to be the biggest losers.
Last but not the least the government should not collect any import duty and sales tax on raw materials/components. The front loading renders the local manufacturers uncompetitive in the international market. Higher cost of locally produced goods proliferates smuggling, which ultimately leads to closure of manufacturing units.
All of us must accept the fact that 'pressure groups' are present and fully operative in the country