ISLAMABAD, 17 May 2004 — All capital goods and industrial raw materials imports into Pakistan will be made duty-free in order to boost the domestic economy and slash the cost of production.
This is part of the new tax proposals and concessions to be made a part of the budget for fiscal 2005 that starts July 1, 2004. The Ministry of Finance has worked with the Ministries of Commerce, and Production & Industries on the proposal to cut the customs duty on machinery to zero in order to help the economy pick up faster. The step is also part of a plan to face future competition unleashed by the removal of tariffs under the WTO (Word Trade Organization) from January 2005 onward.
Pakistan’s economic managers, led by Finance Minister Shaukat Aziz, have gradually, over the last four years, been slashing customs duties on a range of imports in order to reduce the cost of making industrial products. The objective is to help compete better in the global marketplace, and to lower the price level for domestic consumers. A key objective of such a policy is to make Pakistan investment friendly, especially for foreign direct investment.
Hundreds of imported items have benefited from the exemptions and cuts in duty on capital goods and machinery as well as industrial raw materials. The proposed tax cut, for a wide variety of industrial machinery, will take the present level of import duty from and average of 5.0 percent ad valorem to zero. In addition, surcharges and other taxes currently levied on top of the 5.0 percent will disappear. The government will protect the domestically manufactured machinery by making the zero-rating of customs duty only applicable for machinery not also manufactured locally. Even with this condition, almost 90-95 percent of machinery imports will benefit from the zero-rating, the Ministry of Finance stated.
There has been a surge in machinery imports over the last three years not only due to duty cuts and other incentives, but also because of machinery upgrading
The textile sector, the country’s biggest industry, has invested nearly $4.0 billion in upgrading. It is now better poised to face the quota-free world of 2005 and beyond. The oil and energy has also seen an investment of $1.0 billion during this period.
The National Budget will also focus on pushing the country’s exports further. Commerce Minister Humayun Akhtar said, “The government will provide, in the national budget, more incentives to exporters.”
The government is working on a proposal to “improve the duty and tax remission on exports scheme,” and to remove other obstacles to a faster export growth. Akhtar said, “The customs duty structure for importing machinery for industries like gems and jewelry, food processing, horticulture, and marble & minerals will be reduced.”
Ministry of Commerce expects fiscal 2004 export target of $12.1 billion will be achieved. The ministry also believes that if the questions of sales tax refund and pricing and customs duty on man-made fibers are settled between the government and the business, Pakistani exports can soar to $20 billion “within the next few years.”
Exports in the first ten months of fiscal 2004 crossed $10.0 billion. On the back of an estimated at 15 percent increase in large scale industry, exports rose 13.05 percent, compared to the same period of fiscal 2003 when these were $8.85 billion.
Imports in these 10 months totaled $12.01 billion — an increase of 18.96 percent over the same period of 2003. Imports rose as a number of industrial sectors imported larger machinery for modernization and capacity expansion, and used more industrial raw materials.
