Budget proposals 2014-2015: FPCCI suggests to impose regulatory duty on imported items under FTA/PTA

KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has recommended that regulatory duty should be levied on items which are being imported under free trade agreement (FTA) and preferential trade agreement (PTA) in order to protect the local industry.
It said that goods imported under these SROs on reduced rate of duty are flooded in the local market thus rendering the local industry of these products uncompetitive against them.
It is suggested that the para-2 of the SRO 896(I)/2008 should be removed and the regulatory duty should also levied on the items imported under FTAs and PTAs.
Similarly, the items imported from Peoples Republic of China vide SRO 659(i)/2007 dated June 30, 2007 should also be subject to regulatory duty.
The SRO 896(I)/2008 levy Regulatory Duty on certain imported items under FTAs and PTAs. However, under para-2 it does not envisage levy of Regulatory Duty on items imported under FTAs and PTAs.
The SRO 659(I)/2007 allow import of certain items from China under reduced rate.
The apex body has demanded the government that in case if department fails in settlement of provisional assessment of cases then the declared value by the importer should be accepted and would be finalized within 90 days.
Although it was agreed by the then Minister of Finance, Chairman Planning Commission and Chairman Federal Board of Revenue (FBR) that if consignments released provisionally under Section 81 should be finalized within 90 days but not incorporate in the law.
The federation has suggested that there should be no duty on import of capital goods because it ultimately used by the cottage, small, medium or large scale Industry.
At present, the duty on import of plant and machinery ranges between five percent and 25 percent on the other hand, other regions are offering duty free import of plant, machinery and spare parts.
The FPCCI has proposed that goods of the aggrieved parties should be released U/S 81 after obtaining proper securities and pay orders excluding PDC for valuation. In this regard, relevant amendment may be made in Section 25 A of the Customs Act, 1969.
The apex body has recommended that if dispute arises between importers and the customs authorities regarding classification their case should be referred to the classification committee of the customs department to get its opinion. In the meanwhile, goods of the importers may be released provisionally after obtaining proper securities/pay orders.
It said that if there is no mis-declaration of description and the dispute arises due to PCT Heading, then no penal action should be taken. In this regard, Clause 1(e) of the SRO 499(I)/209 should be amended.
The federation has advocated that import duty on used lubricating oil should be reduced to zero percent from current rate of 20 percent by using this measure industry would develop.
The lubricating oil produced by the waste/used oil reclamation plants will discourage its smuggling from Iran, thus saving foreign exchange besides creating employment opportunities in the country.
It said that waste oil (used lubricating oil) of PCT heading 2710.9100 is a raw material of the reclaimed lubricant oil industry and is subject to 20 percent import duty.
The FPCCI highlighted that the high rate of duty discourages imports of used lubricating oil, creating scarcity of raw material for the 32 waste/used oil reclamation plants, currently sanctioned by Oil and Gas Regulatory Authority (OGRA), which at present are operating only up to five percent of their sanctioned capacity.
Consequently, the main demand of lubricating oil is being met through smuggling from Iran.
The FPCCI has proposed to reduce customs duty to zero percent and income tax to one percent on the following kiryana items including: cashew nuts; almonds; big cardamom; small cardamom; white pepper; black pepper; mace; nutmeg; cloves and copra
It is advocated that the duties and taxes should be reduced on some kiryana items to curb smuggling and same duties structures should be levied as on Kashmir LOC trade (especially from India) be also imposed on all other cities/ports of Pakistan.
At present the smuggling of big cardamom, small cardamom, black pepper, white pepper, mace, nutmeg, cloves, copra, almonds, and cashew nuts in huge quantities is undertaken under the umbrella of the Afghan Transit Trade Agreement, Kashmir LOC trade and Quetta via Iran, which is not only diverting legal importers towards the culture of non-documentation, but is also causing a loss to the government’s revenues.
It said that the import duty on passenger car tyres (HS Code 4011.1000), light truck and 4×4 vehicles tyres (HS Code 4011.2010) and agricultural tyres (HS Code 4011. 6100) should be minimized to five percent on the tyre sizes which are not manufactured locally, and withholding tax should be minimized to two percent on import of all kind of tyres and tubes.
Currently, the annual demand of all type of tyres in Pakistan is estimated at 6.43 million, out of which 1.23 million (19.12 percent) is met through local production, 2.34 million (36.39 percent) through import and 2.85 million (44.47 percent) is met through smuggling, causing an estimated Rs 6,590 million loss to the government exchequer, mainly due to the high impact of duty and taxes on the import of tyres.
The FBR should distinguish between finished goods importers, raw material importer and machinery importer to facilitate them by allowing such type of importers the same benefits as allowed to industry.
It is suggested to allow the good declarations (GDs) into private warehouse without the cancellation of the said GD to avoid heavy losses of Industry/ importer.
Mostly GDs are submitted for home consumption but when dispute arises between customs and consignee, importer has to bear heavy demurrage and detention charges due to non settlement of dispute between customs and consignee.
FPCCI is of the view that regulatory duty should be dispensed with as the international trade is being conducted on the basis of tariff and the regulatory duty would otherwise appeared to be a tariff measures and a barrier to the tariff.
In this regard, the additional burden of regulatory duty should be withdrawn.
The apex body has proposed that mixture of saturated monohydric alcohols should be substituted instead of “Sabutol” chemical description in the statutory regulatory order (SRO).
Alternatively, it is proposed that PCT heading 38.14 may be sub-divided to eliminate classification disputes between Alcohol Solvent (29.05) and Composite Solvent (38.14) and as such entry at S. No. 157 of SRO will become redundant: mixture of saturated monohydric alcohols proposed to be charged at five percent duty under PCT 3814.0010 and others would be at 20 percent under PCT 3814.0090.
Sabutol HS Code 3814.000 is a branded product of M/s. Sasol of South Africa, included at S. No. 157 of SRO 565(I) 2006 dated 5-6-2006 and subject to five percent duty if imported by Butyl Acetate manufacturers. As such the benefit of SRO could only be availed if the goods are imported from M/s. Sasol. This creates anomaly as there is only one supplier and one importer.
The apex body has proposed to provide level playing field to local industry by rectifying the custom tariff anomaly and re-numbering the H.S. Code of these other esters of acetate as follows: duty of 25 percent for Sec-Butyl Acetate under 2915.3930; 25 percent for Methyl Acetate under 2915.3940 and 25 percent for n-Propoyl Acetate under 2915.3950.
It said that the local manufacturer of normal Butyl Acetate are facing hardship and has become uncompetitive due to custom tariff anomaly which has been created when Chinese manufacturers have started exporting of Sec-Butyl Acetate (H.S. Code : 2915.3990) from the year 2010 to replace n-Butyl Acetate (H.S. Code No. 2915.3300). The import duty on n-Butyl Acetate is 25 percent Ad. Vol. to protect the local industry whereas; the import duty on Sec-Butyl Acetate is five percent Ad. Vol. (zero percent custom duty on Chinese and Malaysian products due to FTA). Therefore, the protection given to local industry has become redundant.
the FPCCI said that the local manufacturers are using raw material n-Butyl Alcohol (import duty five percent) which is constitute 40 percent and Glacial Acetic Acid (import duty 25 percent) which is constitute 60 percent to manufacturer n-Butyl Acetate whereas the import duty on Sec-Butyl Acetate and other Ester of Acetate namely n-Propyl Acetate and Methyl Acetate is five percent Ad. Vol. (zero percent custom duty on Chinese and Malaysian products due to FTA). Therefore, the local industry is not in a position to compete these imported products.
The notable point is that due to the aforesaid anomaly the government is loosing huge revenue as there is a negligible import duty on import of these acetates in comparison to import duty paid by local manufacturers on their raw materials.
The FPCCI has suggested that the requirement of sales tax registration number in WeBOC system for generating I.D and Password for exporters should be removed altogether with immediate effect to facilitate current export orders and deadlines.
It is also proposed that exporters (not claiming sales tax refunds) should be exempt from mandatory sales tax registration and exporters belonging to the cottage industry who are already exempt from sales tax vide the sixth schedule of the Sales Tax Act 1990 should be allowed to register in WEBOC without sales tax number requirement.
It further informed that the above should be implemented on permanent basis and if there are some limitations, then in the long term a threshold should be notified whereby small exporters should be exempt from sales tax registration.
In current scenario, the WeBOC system is designated in such a way that in order to register and generate a password and ID; a sales tax registration number of the company is mandatory and without the I.D/Password, no exports can take place.
Hence, it is mandatory for all exporters; even the one’s not claiming refunds are required to get themselves registered under Sales Tax Act 1990. This has not only caused delays in exports but also resulted in cancelled export orders and loss of valuable foreign exchange revenues.
Furthermore, it is discouraging exporter’s especially small exporters of the cottage industry and knowledge based products etc. which are not registered in the sales tax.
It is highlighted by the apex body that it is understood, at present earning foreign exchange is the most important requirement for the survival of Pakistan’s economy and exports is the single largest source of earning foreign exchange revenue for the country. Therefore, Pakistan needs to be an export oriented economy and exports must be encouraged.
It is also the policy of the government that country should not rely only on select sectors for exports and find ways to increase the exports of non-traditional products such as the cottage industry including handicrafts and knowledge based products including software designing etc. This sector has potential to develop provided they are properly facilitated and encouraged.
It is mentioned that all exporters are already in the tax net as no exports can take place without having the national tax number (NTN) number on the e-form.
There are hundreds of small exporters in the country whose share in exports both in terms of numbers and value is significant and mainly deal in non-traditional items. They mostly have low turnover and are not registered in sales tax as many of them fall under the category of cottage industry and are exempt from sales tax vide sixth schedule.
It is being witnessed that they have very limited resources and burdening them with sales tax registration which would mean that they must employ additional help for compliance and missing monthly filling dates will mean additional penalties thus increasing their cost of doing business.
Furthermore, exporters who are not claiming refunds are contributing to the national economy but not only bringing foreign remittance into the country but also by not burdening the national exchequer through refunds.
Moreover, no such condition is applicable for exports in the neighboring countries –India and Bangladesh and having it here in Pakistan will hamper our competitiveness.
It may be further noted that such exports are seasonal and do not take place year round therefore, they should not be burdened with monthly fillings. This will be against the government policy of de-regulation and simplification of law. In conclusion, far reaching negative impacts such as following will take place: increase in cost of doing business; discouraging exports; loss of export markets especially in the non-traditional sectors; loss of foreign exchange revenues burdening national exchequer by increase in refunds; reduction in productive employment opportunities; decrease in poverty alleviation; widening of trade deficit.

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