PTI govt reduces total trade volume of country, notes PRIME

ISLAMABAD-Policy Research Institute of Market Economy (PRIME), an economic think tank, has noted that PTI’s government has ended up reducing the total trade volume of the country in such a manner that total imports and total exports both have fallen down in an effort to curtail the trade and current account deficits.

As 18 per cent of FBR revenue comes from customs duties, and 38 per cent from Sales tax (of which approximately 55 per cent is contributed by imports), naturally FBR revenues were bound to take a hit, which explains the lacklustre revenue performance of the government. On completion of PTI’s two years in federal government, PRIME has issued a brief report on its assessment of the federal government’s performance in the domains of Trade Performance, Tax Policy Administration, and Business Regulations.

In terms of trade performance, in its first two years in power, PTI had laid the ground for its tariff policy. The policy entails simplifying tariff slabs on the principle of cascading; reducing additional customs and regulatory duties; providing time bound protection to nascent industries; gradually reducing tariffs on raw materials, intermediate and capital goods; and eliminating difference in rates for commercial importers and industrial users to end misuse.

Budget 2020-21 has been forthcoming in reducing the incidence of duties on imports to the extent that the customs duty proceeds for FY2021 are forecasted to be 36 per cent less than the previous fiscal year. However looking at the trade statistics for 2018-2020, goods imports have seen a large contraction from $55.6 billion in FY18 to $42.4 billion in FY20. Similarly, albeit to a lesser extent, goods exports dropped from $24.8 billion in FY18 to $22.5 billion in FY20. All things considered, during PTI’s two years in government, both imports and exports have faced a substantial downward slide.

In the domain of Tax Policy Administration, by deciding to bring the vast majority of non-tax paying retailers under the ambit of tax net, the federal government took a bold step. Retailers contribute around 18 per cent to the national income but their tax contributions account for less than 1 per cent of total FBR revenue. The government imposed the condition of production of copy of CNIC for purchases over Rs50,000 and floated the idea of income tax calculated as a fixed percentage of annual sales turnovers. However, the government succumbed to the pressure tactics adopted by various traders unions and kept on extending the deadline for implementation of these measures so as to maintain status quo.

Pakistan’s Doing Business ranking has significantly improved from 136th to 108th in a year. Towards business-friendly regulations, Government of Pakistan has established Pakistan Single Window (PSW), which will go live in 2022. The PSW programme includes phased establishment of an ICT-based platform involving simplification, harmonisation, and automation of regulatory process related to cross-border trade. In October 2019, Government of Pakistan introduced the country’s first ever E-Commerce policy. The prime minister has announced a construction incentives package which has given the status of industry to construction sector, it has introduced a fixed tax regime for the industry, and withholding tax has been exempted on all construction-related goods and services except steel and cement.

The report by PRIME has been prepared to assess the performance of the federal government from the lens of its Prosperity Agenda, which states that low tariffs and open trade regime; flatter, low-rate, broad, and predictable taxes; and competitive markets with good regulations are preconditions for growth, prosperity and job creation.

Article source: https://nation.com.pk/16-Sep-2020/pti-govt-reduces-total-trade-volume-of-country-notes-prime