Experts discuss SROs impact on economy

ISLAMABAD: The National Tariff Commission (NTC) is proposing the government to bring out 500 to 600 tariff lines from fifth schedule of Customs Act to normal schedule in the upcoming budget 2021-22 in order to remove distortions from the SRO based concessionary regime.

The cost of exemptions and concession in last two fiscal years stood at Rs2.3 trillion. The World Bank’s economist proposed that there should be sunset clauses for providing any concession to any sector with the guarantee that it would not be extended.

It was crux of discussions among different experts in a webinar titled “the impact of SRO on Pakistan's economy" organised by the Pakistan Institute of Development Economics (PIDE) here on Monday night.

It was pointed out by Dr Nadeem Ul Haq that there was no rationale for imposing Regulatory and Additional Customs Duty. There is no rationale for tariff structure on powerful lobbies but he had failed to convince when he was part of official meetings as deputy chairman Planning Commission.

The WB’s economist said that there is little research available on SRO based concessions but keeping in view international experience there should be transparent mechanism for providing concession to any specific sector.

Robina Ather, Chairperson National Tariff Commission (NTC) said the import tariff constitutes 47 percent of the overall revenue collection of the FBR. The revenue should be generated through domestic taxes including income tax, sales tax and excise duties. Once the import tariff rates are reduced, the concessions and exemptions would automatically go away, she added.

As far as exemption schedule (Fifth Schedule) of the Customs Act is concerned, we are trying to reduce the items under the Fifth Schedule, she said.

International tax expert Dr. Ikramul Haq stated that the taxation that includes reduction or enhancement of rates or giving exemptions, waivers and concessions by SROs is a flagrant violation of the Constitution.

The delegation of power to executive to issue SROs is violation of Article 77 read with Article 162 as any Bill that imposes or varies a tax or duty, the whole or part of the net proceeds whereof is assigned to any province, cannot be even tabled in Parliament without the prior approval of the President.

WTO expert Dr Manzoor Ahmed stated that the FBR has its own vested interest of raising revenue through SROs, tariff or schedules etc. The FBR is withdrawing the SROs, but the same things have been shifted to the schedules like Fifth Schedule of the Customs Act. The tax concessions and exemptions available to the sectors and the individuals are now part of the schedules. He said that the government seemed happy with tariff rationalisation for raw material but it did not allow when the industrial sector like auto, steel, paper and other sectors came under discussion with the purpose to bring efficiency. He said that exemptions/concessions possessed efficiency cost and cited example of Turkey as its exports increased to $150 billion but Pakistan remained stuck because of these distortions in its economy.

Dr Suddle, Former Federal Tax Ombudsman, said that the SRO culture has destroyed the whole tax system and we must get rid of them. The FTO office has witnessed cases where SROs have overridden the law, superseded the legislation and even in some cases the SROs replace the law. In case of emergency like situations, the approval of the tax exemptions or concessions should be taken from the Parliament. The SRO culture is facilitating different lobbies, creating distortions in working of the FBR.