FBR Imposes More Duties to Discourage Import
Rising trade deficit has forced the government institutions to make more measures in order to curb the issue. After State Bank of Pakistan (SBP) that made changes in prudential regulations and reduced the financing limit and period, particularly for imported vehicles on the back of inflated trade and current account deficits, the Federal Board of Revenue (FBR) has come into action.
Effective from 27th September, FBR issued an SRO1265(I)/2021 to amend the SRO856(I)2021 according to which 7% additional customs duty (ACD) has been imposed on the import of cars, jeeps, light/heavy commercial vehicles in completely knocked down (CKD) form and components and sub-assemblies of automotive vehicles. According to the notification, 7% ACD would also be applicable on the import under notification no SRO 655(1)/2006, dated the 5th June, 2006.
The SRO 655 (I)/2006 is related to the exemption of raw materials, sub-components, components and sub-assemblies, as are not manufactured locally, imported for the manufacture of components and assemblies. The imports under the SRO 655(1)/2006 included sub-components, components and sub-assemblies of automotive vehicles, automotive climate control equipment and automotive batteries meant for in-house use or supply to OEMs and assemblers or sale in the open market.
Additionally, FBR has also identified over two dozen major import items for slapping massive regulatory duty with an aim to slash down the import bill by $800 million (Rs 135.6 billion) per month. The said imported items include automobile, packed foods, animal foods, blankets, tires, cosmetics, master baths, varnishes, stationery, different products of textiles, sweeteners, and others.
The high import bill widens current account deficit that has already ballooned to $2.3 billion in the first two months of the current fiscal year. Hence the Tariff Policy Board is expected to meet next week under the chairmanship of Adviser to Prime Minister on Commerce Abdul Razak Dawood, in which different stakeholders, including ministry of industries and FBR will finalize a proposal to levy massive regulatory duty for the purpose of discouraging imports.
Ministry of Industries and Production and FBR have proposed the imposition of 50% regulatory duty (RD) on the import of electric vehicles (EVs) having more than 50 kWh battery packs. Due to a decrease in custom duty on EVs in CBU condition from 25% to 10%, the import of EVs is resulting in an increase in the current account deficit. There is another proposal to increase the RD from 15% to 50% on hybrid vehicles ranging 1501cc-1800cc. This intervention will discourage the import of vehicles in CBU conditions and improve the current account deficit.
The regulatory duty on CBU import of normal gasoline vehicles is likely to increase from 15% to 50% as well. Besides, enhancement of Federal Excise Duty (FED) from existing 5% to 10% on locally manufactured cars/SUVs of 1501cc and above, is also under consideration. Furthermore, the FED on completely knockdown (CKD) manufacturing is slated to increase in view of the current financial crunch.