MFN status to India: Edible oil industry seeks duty and tariff revision

RECORDER REPORT

ISLAMABAD: The local edible oil industry has proposed revision in the duties/taxes structure and tariff rationalisation with regards to the vegetable ghee/cooking oil sector along with changes in customs and warehousing rules/procedures on grant of Most Favoured Nation (MFN) status to India.

Sources told Business Recorder that the industry has proposed doing away with warehousing surcharge @ 0.75 percent and admissibility of zero-rated imports of raw material (edible oil) used in export of vegetable ghee/cooking oil instead of Duty and Tax Remission for Export (DTRE) scheme and inclusion of edible oil, vegetable ghee/cooking oil in negative list on giving MFN status to India.

Sources stated that a working paper of the Pakistan Vanaspati Manufacturer Association (PVMA) revealed negative impact of MFN status to India on the existing taxation regime and tariff structure as far as the local edible oil industry is concerned. The industry has recommended enhanced duty of 35% on imports of vegetable ghee currently imported in (flexi-tanks) containerised form, anti-dumping and countervailing duty on imports from India up to 35 percent, removal of anti-dumping duty imposed on ghee industry inputs such as on import of tin plate and effective check on cross border smuggling on both eastern and western border.

The industry has further recommended the Federal Board of Revenue (FBR) to revise the existing taxation structure on the edible oil industry following grant of the MFN status to India. It has been further proposed inclusion of edible oil, vegetable ghee/cooking oil in negative list under MFN status trade with India. PCT Code of requested items is 1507.1000, 1511.1000, 1511.9020, 1511.9030.

It has been apprehended that under existing duty/tax regime, after granting MFN status Pakistan will become dependent on India to fulfil its national consumption of this food item. There is a need to revise the taxation regime for the vegetable ghee/cooking oil sector to avoid any kind of negative situation for local industry, which would arise after granting MFN status to India.

The industry has pointed out that the technical & tariff barriers restrict Pakistani importers to build stocks compulsory for 90 days. For instance latch of ware-housing surcharge (0.75 percent) effective after 30 days from date of in-bonding forces importers to reduce their imports and keep it in line with 15-20 days consumption. Though national exchequer receives no benefit from this latch but on the other hand the local market loses its strength to fight inflation in international market prices of edible oil for longer duration, hence rise in prices of end product is being borne by end consumers.

Sources proposed necessary agreement between State Bank of Pakistan and Indian Reserve Bank to facilitate opening of letter of credits and other banking facilities. The formation of inter-ministerial committee under Ministry of Commerce further armed with representatives of trade bodies (Sectoral Associations) to ensure harmonisation and marrying up of all stakeholders (Regulators, Traders and Manufacturers) for successful trade and further address to impediments if observed during brain storming session. The committee so constituted shall also address in house existing technical and tariff barriers currently impeding the imports cum manufacturing cum exports.

According to the industry's viewpoint, since the 80 percent of total imports consist of Palm oil, therefore the sector has remarkably improved the infrastructure to handle the large imports (approx. 2 Million Tons/year). In this regard, the Tank Farm at Port Qasim to store 350,000 M Tons and 70,000 metric tons. At any given point of time edible oil stocks available at Port Qasim/Karachi port for disappearance ranges between minimum 150,000 M Tons to maximum 225,000 M Tons. The volume (150,000-225,000) is barely enough to meet the national requirement for 20 days only. Whereas 90 days of stock, which totals to approximately 500,000 M Tons is the need of hour, since import process consumes approx. same length of time. Being perishable item storage for longer duration is yet another challenge.

The working paper further disclosed that on exports front the dominant presence of Indian origin Ghee in Afghanistan reveals the effectiveness of subsidy given by India to the sector. The lesser/Nil Custom Duty on imports of Palm Oil and competitive tax structure on Indian locally produced edible oil (when compared to Pakistan) are promoting the exports of this product. It is evident that under same duty/tax regime, after granting MFN status Pakistan will become dependent on India to fulfil its national consumption of the food item. Moreover, India and China being the largest importers of edible oil in the world, while making purchases enjoys concessional prices and cheaper freight rates as well. The international market prices are also disturbed at any given point of time besides many other factors when these two giants make purchases to build up their stocks.

In the international edible oil import arena Pakistan occupies 3rd to 4th slot. Since the exports of Ghee to Afghanistan & Central Asian Republics (CARs) are not materialised (marginal) due to in-house tariff & technical barriers, therefore, importers-cum-manufacturers-cum-exporters are handicapped and cannot compete with India in price negotiation. Furthermore comparison of duty in Pakistan and India further retards the scope.

The working paper further said that in the absence of any announced national policy and untested effectiveness of regulatory bodies, opening of trade with India under MFN status is likely to give advantage to Indian exporters of edible oil/ vegetable ghee & cooking oil to Pakistan.

India can easily bag the advantages of international market price fluctuation, which is obvious after the closure or retarding of local industry and edible oil imports in Pakistan. Nevertheless it is for sure that no credit of declining prices shall be shared with Pakistani consumers. Hence Pakistan will lose its grip on food security and availability of product at affordable prices, industry opined.

Large scale subsidies given by India to its agriculture and manufacturing sectors has to be addressed by imposing anti dumping and countervailing duties on imports from India or similar/identical subsidies be granted to local sectors to compete with them. Besides eminent food in-security, following industries depending on manufacturing of vegetable ghee/cooking oil will also be affected. The sectors included soap industry, transport sector and solvent extraction industry, edible oil industry added.