Additional duty on luxury items

THE decision of the Federal Cabinet to impose 15 to 50 percent additional customs duty on import of luxury items, including non-essential food items, is no surprise. In fact, given the huge trade and current account deficit over the last year, dwindling foreign exchange reserves and tremendous pressure on the exchange rate of the rupee in the recent past, such a step seems somewhat belated. The measure was complemented by increasing the cash margin by the State Bank on Letters of Credit (LC margin) for imports of over 386 luxury items to 100 percent with immediate effect to curb imports and stabilise the rupee. Various non-essential items, according to the revised list, would now be subjected to 50 percent import duty. An additional 15 percent custom duty has been imposed on more than 300 items. It may be mentioned that duty on these items had been increased from 25 to 35 percent in the 2008-09 budget and the cumulative duty would now stand at 50 percent. In the case of more than 30 items, including electric ovens and cooking ranges, the custom duty had been increased from 20 percent to 30 percent in the last budget but would now stand at 50 percent. Vehicles of over 1800 CC to 3000 CC would be subjected to 50 percent regulatory duty. An additional duty of Rs 250 has been imposed on new mobile phones, besides 30 percent duty on landline telephone sets. This duty will also be in addition to Rs 500 imposed in the budget for 2008-09. No additional duty has been imposed on the import of raw materials or machinery. Also, regulatory duty will not be levied on the items imported under Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs). ONE ITEM STANDS OUT IN THE LIST WHOSE IMPORT IS SIGNIFICANT: Cellular telephone sets. Around $500 to 600 million of cell phones are reportedly imported every year. Import duty was raised from Rs 250 to 500 in the budget. Now it has been raised to Rs 750 per set. High tariff on these sets would give rise to smuggling. Raising of tariff on home appliances and gadgets would provide tariff protection to local assemblers. This could result in higher sales of locally produced appliances. However, this would also lead to higher import of parts and accessories by the assemblers and could balance out any reduction on the import bill. After taking into account the import of oil, machinery, raw material and food items, flexibility in an import regime is limited. The reason for announcing increases in import duties on a wide range of consumer items together with imposition of 100 percent cash margin on LCs by the State Bank is obvious.
It shows a serious concern on the part of the authorities to arrest the rise in imports, contain the bulging current account deficit, arrest the dwindling level of foreign exchange reserves and stabilise the fast deteriorating trend of the rupee. Pakistan, of course, cannot afford to sustain a trade deficit of over 12 percent of GDP and current account deficit of about 8.4 percent of GDP that it incurred during 2007-08. During July, 2008, the position seems to have worsened further with the current account deficit of over one billion dollars or 23.77 percent higher than the corresponding month of last year. A more worrying aspect is that foreign investors are gradually losing faith in the solvency of the economy and the ability of the authorities to reverse its deteriorating fundamentals. While there are reports of flight of capital from the country, the net selling by offshore investors in the stock market has amounted to $396 million so far in the calendar year 2008. However, although the present import restrictive steps announced by the government would appear to be appropriate to the situation, to the general public their overall usefulness, given the enormity of problems in the external sector, would be very limited. As it is, total consumer goods constitute about 10 percent of the import bill and according to a senior official, the import of luxury items ranges only between 1.2 to 1.7 billion dollars. Based on last year’s import value of these items ($800m), some savings due to enhancement of tariff and 100pc LC margin could possibly accrue some savings.

Why is Kashmir burning?

INDIA has long bristled at any suggestion of international involvement in Jammu and Kashmir, which it considers an integral part and an epitome of its secular credentials. Be that as it may, Kashmir now is falling to pieces; and it appears New Delhi can no longer hold. If the Indian government lets Kashmir slip away in the manner it has in the last few weeks and months; in no time would it possibly find itself accommodating the territorial ambitions (read Independence) of the separatists. In point of fact, separatism has become the mantra that dominates the current unrest in the Valley, revealing unprecedented anti-India sentiment in the frontline state. Even though the Muslim-majority Valley has often been disapproved of for rarely exhibiting its gratitude for what India has bestowed on the state in many ways; in this case, the villain of the piece is the government of India’s own inaction and inefficiency in recent months.
By allowing the issue of land grant for the Amarnath shrine trust hang fire for far too long turning it into a festering wound, Delhi allowed the politicians in and outside the state to push their own agenda. As a result, the whole Valley is on the boil. But the land issue is only a symptom. At the heart of this conflict is the deep-seated sense of alienation that pervades Kashmir and that is being successfully exploited both by the militants and extremist groups like VHP and Bajrang Dal. For years, Delhi has been sitting on the completely reasonable and constitutional demands like greater autonomy for the state. All that frustration, built and pent up all these years, is spilling over in those violent protests we see on the streets of Srinagar. It’s high time the government of India at the highest level — President and the Prime Minister — intervened to resolve the issue. They must reach out to the Kashmiris as well as send a clear message to everyone that no one is above the law. Kashmir had been an independent entity before the birth of Pakistan and independence of India. India and Pakistan have long talked of resolving this unfinished business of the Partition by taking the principal party — the people of Kashmir — into confidence. Hence, it is about time India and Pakistan brought the people of Kashmir to the negotiating table and thrashed out the issue. But for any dialogue to take place and any solution to be found, violence must stop. If there’s no peace, there can be no dialogue and there will be no solution to the Kashmir knot.

—Khaleej Times