KARACHI (February 26 2004): Riaz Ahmed Tata, President of Federation of Pakistan Chambers of Commerce and Industry (FPCCI), has urged the Finance Minister and CBR Chairman to reverse the decisions to exclude vegetable ghee and cooking oil units from the DTRE scheme.

He noted with concern that the recent decisions of the Government to exclude vegetable ghee and cooking oil mills from the DTRE rules and their removal from the negative list for Afghan Transit Trade would greatly hurt the vegetable ghee and cooking oil industry if not immediately reversed.

Tata said that this industry, which adds 30 percent value in its production and provides an essential commodity to the local market and for exports, would become unviable.

Due to unchecked smuggling and inequitable government policies, 50 percent of production units are already closed and if the government's recent decisions are enforced the remaining vegetable ghee and oil manufacturing units could also seize operations due to unviable economies.

FPCCI chief said that the removal of vegetable ghee and cooking oil mills from the DTRE rules will have negative financial consequences as a lot of cash flow will be unnecessarily stuck up which, in the past when the raw materials were imported under DTRE regime, were free of government's levies. The difference between duty drawback and DTRE schemes is as follows:

1. On duty drawback, 3 percent income tax is paid (Rs 1,565 per ton) at the import level. Unfortunately due to section 148(8) of Income Tax Ordinance, 2001, 3 percent paid tax is not adjustable only in case of ghee producing units. Exceptional ruling against the ghee industry is enforced in spite of the opinion of Member Exports, CBR that the 3 percent income tax is adjustable.

2. Under duty drawback, all duty and taxes such as Sales Tax, Customs Duty, Income Tax, etc are payable at import level. Subsequently, Customs Duty and Sales Tax can be applied for refund through different departments, which normally take 3 to 6 months for repayment with considerable efforts, time and cost. Under DTRE scheme no government levies are payable for raw materials procured to produce exportable products and thus cash flow is saved for use in operations.

Ghee units are already suffering negative cash flow problems because of non-refund of Sales Tax since June 2002 and on the average around 50 million rupees are overdue for payment by Sales Tax Department to ghee units.

Units from Northern Areas suffer due to heavy transportation cost paid for transportation of edible oil because of monopoly of transporters. Consequently the goods are prepared in the south and sent by trucks to Northern Areas, which costs 50 percent compare to oil transported. The only advantage units in Northern Areas have is the facility of the DTRE of which they will be deprived if recent government decision is enforced.

The genuine ghee producing units also face competition within the area because unusual facilities are availed by Units in FATA/PATA through court in respect of Sales Tax exemptions. Some of the units in FATA/PATA have also got licence for bonded warehouse through court and are not paying any duty and taxes.

Tata said that the decision of the government to remove vegetable ghee and cooking oil from the negative list for transit trade to Afghanistan will also have grave negative repercussions on the local industry which will lose its local and export market share to unrestricted inflow of imported Malaysian and Singaporean products into Pakistan, as import of ghee and cooking oil is allowed free of duty, sales tax and income tax. Total amount of Income Tax, Sales Tax and Duty currently is Rs 21,030 per ton. The local units have suffered a lot for long. The quantity of genuine and non-genuine importers of ghee and cooking oil will now be much higher because of less cost of imported ghee and cooking oil due to duty and tax differential.

Meanwhile, Sh Amjad Rashid, Chairman, Associated Industries Limited, has also urged Federal Finance Minister Shaukat Aziz to protect export of ghee from Pakistan to Afghanistan.

In a letter to the minister, he said that the removal of vegetable ghee from negative list for transit trade to Afghanistan would hit local industry losing export markets and losing local market through inflow of imported Malaysian, Singapore products back into Pakistan.

He noted with concern removal of vegetable ghee and cooking oil from the DTRE regime and said that it would have a negative impact on exports from the country.

This scheme was introduced to promote exporters from Pakistan, he pointed out.

He said that on duty drawback 3 percent income tax is paid (Rs 1565 per ton) at the import level. Unfortunately, this income tax paid is not adjusted.

PVMA has made several presentations to the minister for this discrimination and had various assurances but no result. Recently the member export CBR who is also members Custom was of the view that the 3 percent income tax should be adjusted.

Amjad said that through duty drawback all duties and taxes like sales tax, custom duty, income tax have to be paid at import level. Subsequently custom duty and sales tax are to be applied for repayment to different department which normally takes 4 to 6 months for repayment with effect time and cost.

He pointed out that ghee units are already facing cash flow problem because of non-refund sales tax claim since its start from June, 2002 and average 40 to 50 million rupees are payable by sales tax department to the units.

The chairman noted that units in Northern Areas are suffering due to heavy transportation cost to be paid for the transportation of edible oil, while the ghee manufacturers in southern area are distributing their products by trucks to Northern Areas which cost at least 50 percent less than the oil transported. The only advantage Northern Areas units get under DTRE scheme has now been withdrawn.

He claimed that more than 50 percent units are lying closed. The units operating are also facing tough competition within area because unusual facilities are being availed by the units for sales tax exemption in FATA/ PATA through Supreme Court, while some of the units have got stay through Supreme Court for bonded warehouse and are not paying the duties, sales tax, income tax.

Courtesy Business Recorder