Pakistan to Reduce Some Import Taxes in Bid to Boost Growth

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Pakistan will cut taxes on imports of raw materials to spur manufacturing and overall economic growth, according to Prime Minister Imran Khan’s trade adviser.

Customs duties on input items needed by pharmaceutical, chemical, engineering and food processing industries will be reduced by 3% to 10%, Abdul Razzak Dawood, Khan’s adviser on commerce, said in an interview by telephone. That will help lower the import of finished goods, encourage local production and put the nation in a position to boost exports, he said.

“Pakistan had ridiculously high duties,” Dawood said. The objective is to put Pakistan on par with other countries on trade taxes, he said.

The proposal will find mention in the federal government’s annual budget for the year starting July 1, by when it targets to achieve a growth rate of 4.8%. The nation forecast growth to be 3.9% this year after a rare contraction last year. The new budget is scheduled to be presented in the lower house of the parliament on June 11.

Pakistan to Reduce Some Import Taxes in Bid to Boost Growth

Paring import taxes will be a huge policy shift for Pakistan, given more than 40% of its total tax revenue is generated from levies on inbound shipments. Khan’s government is seeking to end the nation’s reliance in recent years on foreign loans and bailouts, and instead boost industrial productivity and the share of exports in the economy.

To that end, the administration will extend concessional long-term financing for exports as well as working capital financing to businesses in the next fiscal year, Dawood said. The nation’s exports haven’t grown significantly in the past decade, averaging $23 billion annually. For the next financial year, the government hopes it would be higher than $25 billion.

Pakistan’s economy survived through the global Covid-19 pandemic with support of international lenders and debt repayments reliefs by G-20 nations.

The slow pace of tariff liberalization thus far has hurt Pakistan’s competitiveness, compared with regional nations like Bangladesh, Malaysia and Vietnam, whose total exports consist of 40% imported components, said Manzoor Ahmad, Pakistan’s former ambassador to the World Trade Organization.

“We take imports as an evil. This misperception must go away,” he said. Without “imports, there will be no increase in exports,” he said.

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