The government is exploring measures to once again increase import taxes on what are considered ‘luxury goods’ or impose stricter regulations on importing cars through baggage or gift schemes in an effort to control the rising imports that have been observed since last month.
Interim Finance Minister Shamshad Akhtar discussed proposals to disrupt import flows through tariff and non-tariff barriers, a move initiated by the Commerce Ministry following a more than 21% increase in imports in August compared to the previous month.
However, Pakistan Customs has expressed doubts about the effectiveness of curbing imports of luxury goods through taxation, as their value may not be substantial enough to yield significant benefits. Past experience has shown that reducing formal imports of luxury goods through taxes often led to a corresponding increase in imports of these goods through Afghan Transit Trade.
Last year, a ban was imposed on 33 categories of goods, along with quota restrictions on cars, cell phones, and home appliances, but it was subsequently lifted, and additional duties were imposed. These duties expired earlier this year, and increasing duties and taxes to control the import bill had limited effectiveness.
As part of an agreement with the International Monetary Fund (IMF), restrictions on imports were abolished in June. In August, the import bill increased by 21% over July, according to the Pakistan Bureau of Statistics (PBS).
The Federal Board of Revenue (FBR) has not supported the proposal to increase import duties, citing that duties have already reached their maximum level. The commerce ministry proposed raising the sales tax rate on imported luxury goods from 25%, but the FBR objected, citing concerns from the World Trade Organization (WTO).
There are discussions about informal directions to banks to discourage the import of luxury goods and promote value-added goods. Smuggling and misuse of the Afghan Transit Trade are also being addressed.