KARACHI - The Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended that agreement of a 'quantitative ceiling for imports for Afghanistan (Afghan Transit Treaty) and streamlining of exchange control mechanism is required so that administrative and economic barriers are placed to control smuggling. Pakistan is facing two fundamental menaces in relation to the implementation of import duty structure and abolition of smuggling including abuse of Afghan Transit Trade (ATT). Both these issues directly affect the organised sectors in the country. No meaningful improvement can occur unless such abuses are either abolished or substantially reduced in the short term. This in itself is a complete subject of fiscal policy; however, at the outset following suggestions may lead to constructive framework. In a budget document entitled Tax Proposals for Budget 2009-10, OICCI proposed that in the case of ATT, like all other land locked countries, the agreement for facilitation of imports with Afghanistan be revised. There should be a 'quantitative ceiling for imports required for Afghanistan. Also, exchange control mechanism should be streamlined so that economic barriers are placed for financing of under invoiced goods. At present, liberation of exchange controls are being abused to finance such under invoiced imports. OICCI paper states that over the last two decades custom duty rates on raw materials, intermediaries and finished products have been substantially reduced due to compliance with the WTO and reduction in possibilities of evasion and avoidance on account of high rates of duties. The whole world has changed on account of financial turmoil in the USA and there is a consensual view that ultimate stability in economics will require concentration on the manufacturing sectors and in the wake of reduction of custom duty 'cascading with the duty structures were not appropriately taken care of due to which the local manufacturing sectors have been seriously hampered. In the forthcoming budget, there is a need to review the custom duty structure afresh to facilitate the promotion of the local manufacturing industry. In the absence of proper cascading in the duty structure, such an opportunity cannot be effectively availed. The present structure supports the promotion of trade in commodities rather than manufacturing the same in Pakistan. This results not only in unemployment and poverty but also outflow of precious foreign exchange to certain imports. Furthermore, it should be ensured that custom duty is taken as a measure to manage the trade policy rather than tax collection. According to OICCI, in Pakistan, all imports are subject to a minimum of 5 percent duty. This includes all plant and machinery including other essential items for expansion of the industrial base. There is a valid case of imposition of 5 minimum slabs for the reason that zero duty rates are heavily abused. Notwithstanding, this procedural and governance issue it has to be appreciated that this incidence is hampering industrial growth. Plant, machinery and other items required for local manufacture should, in principle, not be charged with any duty. It is, therefore, necessary that proper mechanism is instituted to ensure zero rate import of items necessary for the manufacture of plant and machinery. OICCI also suggests that there is a need to review the present rate of Value Added Tax (VAT) in Pakistan. The general rate of Sales Tax is 16pc at present. There is an additional 2pc tax on imported products sold in the same state. This rate was originally 12.5pc which has been enhanced to 15 and then 16pc on account of merger of octroi on its abolition. This matter will be more clearly appreciated on the review of the composition of total collection and sectors contributing to the same. There is no general consensus on the rate of VAT around the world. However, it has to be appreciated that in the region being China, India, Thailand, Malaysia and UAE, there is no or much lesser incidence of VAT in the form of sales tax. For example, in India it is a provincial subject with a straight tax rate of around 5 to 10 percent. In China, there is no VAT. The only country in the region with a full fledged VAT is Bangladesh where the incidence is closer to Pakistan.