The recently unveiled budget comes by and large as welcome gift for the paper manufacturing sector. Judging by the budget speech, the main intention of providing relief to the sector is based upon the basis that paper plays an important role in the country’s education sector.
Therefore, in order to reduce the cost of books and aid the local printing industry, the government has decided to exempt customs duty on raw material for the paper industry which is primarily wood pulp and paper scrap. It has also decided to reduce the duty on different types of paper from 20 to 16 percent. While this move is sure to improve both the profitability of paper manufacturing firms as well as bring about a reduction in the cost of books and publishing, there is a need to also revise the flawed taxation structure that the paper industry is subject to.
According to data by the Pakistan Association of Printing and Graphic Arts Industry (PAPGAI), the printing industry raw material is taxed at 52 percent while the paper mills raw material is taxed at 29.65 percent. However, importers of printed material are only subject to 12.2 percent tax. Details of the different duties imposed are given in the above table.
The relief to importers is on account of Pakistan being a signatory to the international Florence Protocol which requires contracting states to abstain from imposing customs duty or other charges on imports of books and publications. The purpose of the protocol is to encourage an exchange of ideas and knowledge.
According to Dr. Minhajuddin of PAPGAI, the flawed taxation structure has resulted in misuse of the duty relief on printed material. This has led to printing jobs being outsourced to China, Malaysia and Singapore among other places and even Urdu textbooks and “Qaidas” are being abroad.
PAPGAI believes that big printing houses such as Oxford University Press Pakistan are major beneficiaries who get their books prescribed in Pakistan while the printing is done in Malaysia and China which are then imported to take advantage of the beneficial tax structure for imported printed material.
This has resulted in sizeable losses to the local printing industry especially the small and medium enterprises operating in the sector. Then there is another issue. Even though the government has exempted raw material for the paper industry from customs duty, what guarantee is there that local paper manufacturers will decrease their prices following the move? The historically high duty structure imposed on paper import is enough evidence of the lobbying prowess of domestic paper manufacturers which are a handful in number.
In summary, even though the budget will alleviate some pressure of the printing industry by reducing customs duty on different imported paper types it is this flawed taxation structure that needs to be addressed. An ideal solution would be to bring at par the duty structure for imported printed material, raw material for the local printing industry as well as raw material for local paper mills. Unless this is solved there is little chance of the government’s plan of bringing down the cost of textbooks and publications.