Challenges to implement tariff policy

The government has already endorsed and unveiled the country's first-ever tariff policy in written form. Titled 'National Tariff Policy 2023', it now becomes an official document to guide the determination of import and export tariffs. In the policy, the government has identified the flaws and complexity of the existing tariff regime. The policy's objectives, goals and key features are discussed in a previous article (Tariff policy: The balancing act; August 27, 2023; P-4, The Financial Express). The current piece briefly focuses on the policy's limitations and challenges it faces to implement the guidelines or recommendations outlined in the document.
The legal status of the National Tariff Policy is a little bit ambiguous. If it is not a legally binding document, it will become a wish list only. If it is a legally binding one, the implementation becomes easier. At present, many policies like export, import and industry policies are not legally binding although approved by the government through legal procedure. These policies have general and specific recommendations in relevant areas. The concerned authorities sometimes follow some recommendations and ignore others. As the authorities are not legally bound to implement policies, they are unlikely to be accountable.
An official English version of the tariff policy is also required so that the trading partners, foreign investors and international analysts can access and decode the country's stance on tariff imposition and rationalisation.
The tariff policy has set 18-point general guidelines to make it effective. The guideline stresses considering impositions of tariffs on import or export level as a determining factor of the country's international trade flows. In other words, tariffs should be considered as a critical tool of the country's trade policy and not an instrument of revenue generation.
It has also called for aligning all the import tariffs with the WTO-bound rate. The country's simple average final bound tariff rate is 156.30 per cent. For agriculture products, it is 186.10 per cent; for non-agriculture products, it is 37.80 per cent. Total binding coverage is, however, 17.90 per cent.
To make the current tariff structure simple and avoid unnecessary complexity, the policy underscores keeping the rates of taxes and tariffs on similar products as equivalent as possible. Through the measure, there will be greater transparency in the tariff structure. At the same time, the policy stresses scrapping the user-specific waivers on tariffs as the practice is discriminating and distorted. Step-by-step reduction of customs duties at the import stage is another priority of the policy to bring consumer welfare in the long run.
Tariff policy further stresses cutting down the protective tariff gradually. A tariff designed to shelter part of the national productive capacity from the full impact of foreign competition is known as a protective tariff. In Bangladesh, the current average rate of protective tariff is 31 per cent, while the average customs duty is 15 per cent. Adding supplementary and regulatory duties (SD and RD) and some other duties with the customs duty, the total tariff becomes a protective one. According to the policy, eliminating the protective tariff is necessary to enhance the competitiveness of the domestic industry.
It is to be noted that the Eight Five-Year Plan (8FYP) strongly stressed coming out from the high and protective tariff regime. It also underscored tariff rationalisation, arguing that Bangladesh's nominal and effective protection tariff levels are among the highest in the world. It also pointed out that tariff escalation and the spread between the nominal protection rate on output and inputs is too high. "Recognising that a high tariff regime undermines export competitiveness, it is time to seriously start scaling back nominal protection rate (NPR) of tariff on domestically produced final consumer goods," the 8FYP suggested, which is also reflected in the tariff policy.
The policy, however, does not suggest blanket withdrawal of protection as it is not feasible. Instead, it strongly recommends following the Protective Duty Act 1950. Under the law, the Bangladesh Trade and Tariff Commission (BTTC) is responsible for making research-based recommendations to provide time-bound protection for potential industries. The government will also protect new manufacturing and infant industries based on BTTC recommendations.
The policy favours the imposition of a regulatory duty in case of any emergency. If necessary, it also suggests mixed duty or seasonal tariffs on a few products. There is also a recommendation for scraping the minimum import value system and making the current bonded warehouse facility transparent and easier.
The BTTC and the National Board of Revenue (NBR) are responsible for implementing the tariff policy. The NBR has to prepare a time-bound work programme to rationalise the existing tariff structure with six months of the approval of the tariff policy. The programme has to follow the 18-point general guideline of the policy document. The BTTC will provide necessary support in this connection.
A high-powered committee also have to be formed with commerce minister as the head. The BTTC chairman will serve as the member-secretary of the 16-member panel responsible for monitoring and reviewing the implementation status of the policy.
Thus, one of the main challenges facing implementation of the tariff policy is proper coordination between BTTC and NBR. Previous experiences showed that tax authorities usually pay little heed to recommendations of the tariff commission, especially during the national budget preparation. This is because NBR's main concern is revenue generation. Under the tariff policy framework, NBR has to change its traditional approach. It needs to explore other avenues to generate more tax as revenues from import tariffs will come down soon.
Active participation of the private sector is also necessary to make the tariff policy effective. So far, the reaction to the tariff policy from the trade bodies and business organisations is limited. Though they were consulted before finalising the policy, the businesses need to review the announced policy rigorously and give feedback.
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