In the budget speech, no assurance was made about continuing the cash export subsidies under the prime minister’s package scheme in the next fiscal year. However, the outcome of the package in terms of increase in exports in the past nine months was highlighted.
A few measures announced in the budget speech focus on continuation of past policies, especially those related to tariff rationalisation.
The Ministry of Commerce has proposed to either withdraw duty altogether or reduce it substantially on 515 tariff lines for mostly raw materials. But, the Federal Board of Revenue has withdrawn customs duty on 104 raw materials/inputs used in the value-added export-oriented industries. In the case of 28 tariff lines the duty however was reduced.
The tariff reduction on industrial raw materials will increase competitiveness of exports and help in reducing the current account deficit.
Member Customs Zahid Khokhar said the duty reduction will cost over Rs1.5 billion in revenue to customs collection. However, he said the measures will promote exports of these industries.
Other measures include, continuation of zero-rating regime for five sectors, reduced mark-up rates will continue under Long Term Finance Facility and Export Refinance Facility, respectively. It was also announced that all export promotion measures under textile policy and strategic trade policy framework will continue in 2018-19. An amount of Rs10bn is allocated for various schemes under these policies.
Budget documents show the government is working on a new package to encourage exports. Keeping in view the prevailing circumstances, this package will focus on increase non-traditional and value-added exports.
As part of the package, government has withdrawn 11pc customs duty on synthetic filament tow of acrylic or modacrylic by inclusion in the Prime Minister’s Export Package. To promote export of leather products to the international market, customs duty on import of tanned hides (including wet blue) have been proposed to be withdrawn.
The proposed plan announced in the budget for clearance of export sector refunds has drawn criticism from almost all sectors. As per the plan, currently pending refund claims will be cleared in a phased manner over the next 12 months starting July 1, 2018.
After July 1, 2018 all new refund claims will be paid on a monthly basis as per the time stipulated in the law.
But exporters were disappointed in the government for not providing a roadmap to clear past refunds. The FBR stopped payment of refunds/rebate for the past many months to show higher revenue growth. This has created a liquidity crunch in the export industry and will ultimately hurt exports.
One of the major expectations of exporters from the budget was the assurance for early clearance of refunds. “The government extends the payment of refunds for another year at a time when the current account deficit is ballooning and exports have been facing difficulty owing to high cost of doing business”, one of the exporters said.
Currently, finished products and most of the raw materials are importable at 20pc duty. As part of import substitution, the duty on inputs for liquid Packaging Industry was reduced. Similarly, the regulatory duty on import of optical fibre cable has been reduced from 20pc to 10pc.
In addition, duty on fibre optic cable and other raw material was reduced to 5pc. Regulatory duty was also reduced to 10pc from 20pc on CKD/SKD kits of specific home appliances and other products to encourage its local assembling.
Imports in the first nine months increased by 17pc when compared to the same period last year. Higher imports are mainly driven by an increase in import of POL products, machinery and raw materials.
To curtail imports, the government has further increased regulatory duty on more than 110 items in the budget. Moreover, the devaluation of the rupee will also decelerate flows of imports.
Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan believes allowing further depreciation in the next fiscal year will moderate import flows. He said customs duty measures, referring to regulatory duties taken in the budget, will also have an impact on the flow of imports. “We have seen the impact of exchange rate adjustment and regulatory duty on import flows in the past few months”, he said.