In the midst of reforms drive, here comes another one; National Tariff Policy 2019-2024. The spirit of the policy for a paradigm shift in the Tariff Regime may be well thought and appropriate move but its implementation would be a challenge.  

Need of structural reforms has been a favorite pep talk with every new economic cycle of boom and bust in our recent memory.  It was not different this time either. The PTI Government assumed the office with a promise to reform this “rotten system”.  Civil services reforms and reorganization of FBR were two most talked about areas. 

Lately, lot of hype has been taking rounds for reforming FBR by having a new supra structure of Pakistan Revenue Authority. As expected, it has met sever resistance from within the department. While this proposed change has yet to find a way forward, another reform initiative has landed; surely not a pleasing one for FBR.

Federal Cabinet has approved National Tariff Policy 2019-24 to be implemented in a period of five years starting from the Budget 2020-21. It’s easy to approve a policy but harder to put it in action. However, it is a major development to relocate the administrative function of Tariff Regime in Commerce Division where it originally belonged to for presumably rational usage of tariffs for trade and investment promotion as well as a revenue instrument. 

 The proposal submitted to Federal Cabinet for approval pleads that this would help resorting to a more rational regime where tariffs are used to contain de-industrialization and anti-export bias in our national Customs Tariffs. However, it is a challenging for any country balancing between revenue considerations, pro-export tariff structures and protections of local industry. 

Last two decades of performance has demonstrated that the Pakistan economy witnessed de-industrialization. The share of industrial production has gone down from 26.4% of the GDP in FY 2010 to 20.3% in FY2019.  Meanwhile, the share of exports dropped from 13.5% of GDP in 2010 to 7% in 2019. Higher tariffs and in the manner these tariffs have been repeatedly used as weapon to raise revenues are blamed for de-industrialization and anti-export bias leading to stagnant exports.  

Due to the inability of tax machinery to collect direct taxes, reliance of Pakistan on taxes collected at import stage has been increasing. The tariffs collected at import stage now constitute around 48% of total tax revenue of the country which is much higher than comparable economies of the region.  Departure from this reliance would only be possible if FBR could shift its revenue collection thrust to direct taxes  instead of current reliance on indirect taxation.   

The Federal Government Rules of business 1973 stipulated the Tariff Policy and protection regime as the mandate of Commerce division. It has been negotiating tariff concessions under bilateral and multilateral arrangements and formulating the Trade Policy; the tariffs being its primary instrument. 

However, the onus shifted over the years to wards to FBR due to ever growing revenue constraints. FBR, being purely a revenue collection agency, has used tariff setting as a primary instrument to augment its revenues. This overriding compulsion has caused multiple layers of policy distortions which adversely effected country’s industrial competitiveness, caused higher import tariffs on imported raw materials, intermediate goods and machinery.

Money speaks louder than anything else. FBR, thus, assumed centrality in tariff setting and has been most frequented block of Pak Secretariat. The importance and power attached with tariff setting helped FBR to amass enormous power and say in trade and industrial policy and any other economic initiative. This subtle but decisive turf of war with other competing and related ministries like Commerce, Ministry of Industries and Defence Production and organizations like EDB made them toothless and often paper pushers for the fulfilment of revenue constraints of FBR. 

National Tariff Policy 2019-24 is an ambitious policy reform measure to reverse these administrative imbalances. It has noble objectives and principles in its spirits like improving industrial competitiveness, removing anomalies in the tariff structure.

 The real challenge, however, would be implementation with its true spirit. Old habits die hard and harder is to relinquish the power.  It would be a formidable challenge to reverse the decade’s old onus back to Ministry of Commerce from FBR amidst the hovering fiscal deficits, severity of hard economic choices and tough stabilization measures in progress under IMF Stabilization program. 

Subtle but brutal intra ministerial turf of war may multiply the challenge of putting the National Tariff Policy into action.  Capacity of Commerce Division to deliver and pacify the fears of revenue loss during the ongoing IMF Program would be harder challenge too. Also, having the IMF’s nod to do so would be not easy as FBR is the focal institution to ensure the ambitious targets; on which it is already faltering.

The writer is a Lahore based political economist, writer and Urdu columnist.