By Muskan Naveed ISLAMABAD, Nov 08 (INP-WealthPK)- The burgeoning current account deficit has been one of the most pressing issues of Pakistan. Towards the end of September 2021, the deficit stood at $1.1 billion. The import bill is touching the sky and exports alone cannot result in the balance of payment which is why limiting the import of luxury items makes economic sense. However, is it really rational?   Why should Pakistan limit imports? With a limited capacity of exports, Pakistan's exports are not enough to finance its increasing import bill, therefore, remittances are crucial. But while remittances have been growing steadily and contributing somewhat to narrowing the balance of payment, our imports have crossed $56,000 million, which calls for other measures. One of the channels that the government has been using to limit imports is  targeting unnecessary or luxury items because other imported items play a vital role in the growth of Pakistan's industries. Luxury goods are non-necessity items, demand for which goes up as income increases. They cater to a certain type of elite lifestyle and are mostly attributed to the high-income class; hence, tariffs on these products make economic sense.  Pakistan trying to limit influx of luxury products The Federal Board of Revenue (FBR) has identified over two dozen products that have been slapped with a massive import tariff in order to decrease the growing import bill. Some of the items cited as luxury products are chocolates, international coffee brands, fruits & vegetables, soft drinks, sanitary products, etc. As of 1^st July 2021, additional customs duty of 2% is imposed on certain goods falling under tariff bands previously rated at 0%, 3%, or 11%. The customs duty has been increased to 6% for goods in tariff band 16%, 6% on goods rated at 20%, and 7% on goods at 30%. FBR is aiming to cut down the import bill by $800 million per month through the tariffs introduced. Should the import of luxury products be discouraged? A closer study of Pakistan’s import bill reveals that luxury items occupy only a minimal proportion of the total bill. Moreover, luxury items are also cited to contribute proportionally to the exchequer of Pakistan.  

	Commodity	FY22 - Jul-Sep Provisional imports (thousand USD)
1	Mineral products	4,572,053
2	Machinery and mechanical supplies	2,248,881
3	Products of chemical and allied industries	1,753,983
4	Textile and textile articles	1,431,312
5	Base metals and articles of base metals	1,402,797
6	Vegetable products	971,695
7	Vehicle, aircraft, vessels and associated transport equipment	955,171
8	Animal or vegetable fats, oils and waxes	870,857
9	Plastic and articles	845,507
Total		15,052,256

Data Source: State Bank of Pakistan The total provisional import bill for July to September 2022 is $17,473,088,000. The nine categories listed above account for 86% of our import bill. Albeit some of these categories may also include luxury products like luxury cars, these broad categories paint an approximate picture of import bill and contribution of luxury goods in it. However, the imposition of increased tariffs is often met with criticism for a variety of reasons. High tariffs on these goods discourage their import; however, it does not solve the problem. By discouraging the import of luxury items through formal channels, the government is further boosting the informal economy of Pakistan, as smuggling of these products will increase drastically. Moreover, people usually resort to buying luxury items through informal channels – like friends and family – to bypass heavy customs duties. This means that the revenue is added to the foreign country’s economy at the cost of Pakistan. In conclusion, while some tariffs on luxury items may make economic sense, it does not address the problem at the roots, as the wealthy will find other avenues to buy these items. A focus on increasing export capacity – as the government has been trying to do – may provide a better alternative.