The Finance Ordinance 2006 is characterised by its reductions in the customs duty on about 130 items of import, mostly from third countries, thus cutting the average customs rate to 8 per cent from 9.6 per cent. It will make importers happy and imported items cheaper. The ordinance, which accounts for the second half of the national annual budget, also introduces the provision of penalty for those traders who conduct business without tax registration. While the government says it has reduced customs duty to control smuggling and under-invoicing, there are people who think the tariff cuts may indeed encourage it. Policy issues are, however, left untouched. Traders with monthly transactions totalling Rs. 200,000 have been brought under the VAT net. As a result of these changes, the government now stands to lose about Rs.1.28 billion in revenue, which is difficult to offset given the fact that the revenue collection rate so far during the year leaves much to be desired. But the state minister for finance, Dr Roop Jyoti, claims that the expected decrease in commercial malpractices would make up for the revenue loss in the long run.

The ordinance may weaken, though not destroy, the competitiveness of the industries concerned as the government has been able to maintain a customs duty difference of 20 per cent between domestic and imported ones. Besides, the domestic carpet and pharmaceutical industries stand to gain from VAT exemption on raw materials. Similarly, the ailing domestic mustard oil producing mills can now expect some boost. Only one per cent of import duty on mustard seeds has been imposed along with the abolition of five per cent duty on industrial and 10 per cent duty on commercial imports. But sops to traders may not necessarily translate into benefits for the overall economy. Besides, second half-yearly tinkering with the budget makes for undesirable practice, reflecting poorly on the government. It is taking the constitutional compulsion too far.