ECC takes measures to decrease growing trade deficit

ISLAMABAD: Prime Minister Shahid Khaqan Abbasi presided the meeting of Economic coordination committee (ECC) to tackle the growing trade deficit between import and export.

The government decided  to impose regulatory duties on up to 250 items, expanded the incentive package for exporters and increased the commission of dealers and oil marketing companies (OMCs) on the sale of petrol by 33 paisa per litre.

In addition, it also allowed private OMCs and dealers to charge the commission of their choice on diesel sales.

The ECC also agreed to issue sovereign guarantees worth Rs39 billion for a coal power project and allocated additional 12 million kilograms of surplus tobacco to all companies and dealers on a pro rata basis. It extended the applicability of the reduced rate of 0.4 per cent withholding tax on banking transactions by non-filers up to December.

To discourage imports, the committee imposed 5-25pc regulatory duties on about 250 items. This may yield about Rs20-25bn in revenue to the government besides having a positive impact on the balance of payments, an official said.

Detailed lists of import items will be announced separately after the exclusion of a few sensitive items, like Christmas trees, having negligible financial impact. The objective is to discourage non-essential consumer items in view of an increasing trade imbalance through higher duties, non-tariff barriers and a hike in benchmark import rates.

The official said that about 230-240 items, like shampoos, second-hand cars, tyres, mobile phones, electronic goods other than computers, tiles and garments, would attract additional duties. Almost one-third of such items related to the agriculture sector, fruits and pulses. Benchmark import prices have also been proposed to be increased on some imported items while others will be discouraged through non-tariff barriers.

Despite strong opposition from the Oil and Gas Regulatory Authority (Ogra) and Federal Board of Revenue (FBR), the committee decided to withdraw Ogra’s power to fix the price of high-speed diesel (HSD) and empowered OMCs and dealers to fix their own margins and retail prices.

An official of the Petroleum Division said it is for the first time that the government has given up the power to fix the HSD price even though it will review the decision after three months to examine the market response.

Simultaneously, it allowed a 33 paisa per litre increase in the sale margin for petrol. Of this, the margin of OMCs was increased by 14 paisa per litre and that of dealers by 19 paisa per litre.

The committee also decided that OMCs would add fuel marker in HSD within six months at the depot stage to avoid adulteration while Ogra would develop a mechanism to monitor the OMCs’ commercial stock position, dealers’ inventory system and fuel marker system.

In order to promote exports, the ECC approved a proposal under which 50pc of the incentive package for exporters for eligible textile and non-textile sectors would be provided on the same terms that applied from January to June without any condition of increment.

The rebate ranged between 5pc and 7pc, but was previously linked to 10pc growth. But half of the rebate will now be paid upfront at the time of export. The remaining rebate will be provided if the exporter achieves an increase of 10pc or more in exports over the last year’s corresponding period.

An additional 2pc drawback will be provided for exports to non-traditional markets, like Africa, Central America, South America and Australia. Besides, expeditious settlement of payment claims by the State Bank of Pakistan (SBP) was also approved.

The decision will have about Rs60-70bn impact during the current year out of the Rs180bn export package announced by former premier Nawaz Sharif last year.

The meeting also provided a provisional approval of the issuance of sovereign guarantees for Rs39bn for the construction of two coal power plants of 660 megawatts each in Jamshoro, subject to a third-party evaluation, especially pertaining to the demand-and-supply situation.

The ECC extended the period of the provision of subsidy to agricultural tube well consumers in Balochistan until Dec 31, subject to the commitment of past payments by stakeholders on the same terms and conditions as approved earlier by the committee on June 17, 2015.

The approval is linked with a comprehensive review of the solarisation of tube wells to be undertaken on a priority basis.