Pakistan government lifts ban on import of luxury items
Finance Minister Miftah Ismail announced on Thursday that the government was lifting the ban on the import of non-essential and luxury items.
Addressing a press conference in Islamabad, he said that if the government had a limited amount of dollars and its foremost priority was to provide basic necessities to the country’s population, then its choice was very simple.
“Do we buy cars or grain with those dollars? Do we buy mobile phones or pulses? Do we buy oil and ghee or home appliances? Our choice becomes very simple.”
Therefore, the government had imposed a ban on the import of non-essential items, the minister said. “However, because it is a requirement of the international community that a ban is not imposed, we are removing it on all items.”
But at the same time, the government would be imposing heavy regulatory duties (RDs) on these items, he said, adding that as a result these items would not be imported as “finished goods”.
“We will try to impose thrice the existing RDs … the maximum amount of permissible RDs,” Ismail said. In some sectors, he said, the government’s RDs would be between 400-600 per cent because the country did not have foreign exchange to spend on items such as Mercedes cars.
“With my limited resources, I will prioritise flour, wheat, cotton and edible oil instead of iPhones and cars. We will remove the bans but impose prohibitive duties in the form of RDs, customs duties and sales tax so their import does not rise.”
In response to a question, the finance minister said the duties would be increased on completely built up (CBU) cars and appliances, imported meat and salmon and other luxury items. The government’s purpose was not to encourage the import of such items but to comply with the International Monetary Fund’s (IMF) conditions and other international agreements while limiting imports, he elaborated.
“The truth is that even though we had the ban for the last three months, you could still find salmon and sushi in restaurants in Karachi and Islamabad. We will regularise that and impose duties.”
He stressed that the ban was being removed because of the IMF and there was no other reason. “But with the kind of RDs we will impose, I believe imports will remain reduced. If you want to maximise revenue, you impose 50pc RDs. But if you impose 500pc RDs, it means you do not want imports to happen at all.”
He emphasised that there would be no restrictions on industrialists who were importing machinery to manufacture items for export, or on the import of spare parts in small quantities. However, there would be restrictions on industrialists who wanted to import machinery to manufacture items to be sold in the domestic market, he said.
“For automakers, mobile phone manufactures and home appliance manufacturers, the plan of action is that we will allow them to import half of what they used to. Give me time till September to get my head above the water.”
Taxes on traders
Secondly, the finance minister said the government had complied with the IMF’s condition that it would not give non-funded subsidies.
The government had aimed to collect Rs42 billion through retail taxes but it would not be able to meet that target, Ismail conceded. “Our revised target is Rs27bn and we will be able to achieve this.”
He said the government would pass an ordinance to remove the fixed tax on small traders. However, the variable taxes — 5pc sales tax and 7.5pc income tax — would remain on every trader for the next three months, he said.
After the three months, the variable taxes would remain the same for traders using between one to 50 units of electricity while they would be increased for those whose units were above 50, he added.
“To meet the gap, we are imposing a further tax of Rs36bn on the tobacco industry. The current tax of Rs1,850 per 1,000 cigarettes on tier 2 packs will be increased to Rs2,050 and Rs5,900 per 1,000 cigarettes on tier-1 packs will be raised to Rs6,500. The Rs10 per kg cess tax on tobacco is being increased to Rs380 per kg.”
The minister said the Federal Board of Revenue (FBR) used to impose taxes on subsidised electricity as well in the past, which had now been removed while sales tax on it would be removed through the upcoming ordinance.
“For example, we used to provide electricity to a small consumer for Rs9 per unit while Ogra (Oil & Gas Regulatory Authority) would fix the price at Rs22. So, the FBR would demand sales tax at the price of Rs22 per unit, but we said the tax will not be imposed on the subsidised amount,” he explained, adding that the government would introduce similar measures for gas.
He added that he would address the sales tax imposed on agricultural machinery as well. “It is a very minor thing and will have little fiscal impact.”
He said the country’s exports this year so far were 7-8pc more compared to last year while imports were 18-19pc lower and the trade deficit was around 30pc lower. The money received in the banking system was $600 million higher than last year, he added.
“The pressure on the rupee has ended because of this. It goes up and down sometimes; a breather is needed and profit-taking happens. I expect the [dollar’s] downward trend will continue. We will continue to live within our means.”
Funding from friendly countries
In response to a question, Ismail said the IMF wanted the country to ensure funds amounting to $6bn, for which the country needed to secure $4bn in funding from other countries.
He noted that the United Arab Emirates had already announced it would invest $1bn in Pakistan. “Reports about the other $3bn have been received but since those countries have not announced it … when they announce it, we will announce it too. But the IMF has announced its meeting which means they have received confirmation from those countries.”
While responding to another question, the minister said Prime Minister Shehbaz Sharif would visit Qatar soon and any agreements would be announced then.