October 22, 2003	Wednesday	Sha’aban 25, 1424

KARACHI, Oct 21: Textile leaders want the government to work out an arrangement to facilitate import of polyester fibre at a reduced cost of duty, but at the same time continue to offer protection to the British multinational ICI, which enjoys a 10-year sovereign guarantee protection, and four other filament yarn manufacturers in the country.

Well-placed sources say that a working paper on tariff rationalization for polyester chain was prepared by the Ministry of Industries and Production last year but was not approved by the Ministry of Finance. Following the reports of pest infestation in cotton crop and escalation in cotton prices in domestic and international markets recently, the textile leaders have again started efforts to revive this proposal.

The proposal has been prepared with consent of the textile leaders and local polyester industry. It offers a massive cut in duty rate of polyester raw material (PTA) items virtually zero as well as on finished polyester staple fibre (PSF) products. But it retains the five per cent differential of the existing tariff structure.

Under this proposal, the government is expected to pay in advance the amount equivalent to 15 per cent duty, which is increasing every year because of domestic sales increase. ICI will be asked to deduct the impact of 15 per cent duty from its price structure.

Actual amount of financial benefit to ICI was Rs1.5 billion in the first two years, Rs1.2 billion in 2000-01 and Rs1.33 billion in 2001-02. This is expected to increase in tandem with the growth of the local sales of PTA. This amount, according to the proposal, could easily be paid from the amount of deemed duty draw back (DDB), which the Central Board of Revenue otherwise paid at present on the polyester component of textile products.

At present high tariffs on polyester chains are levied due to the government’s commitment of 15 per cent tariff on PTA with ICI Pakistan for a period of 10 years from June 1998 to 2008. This protection was offered to ICI after it had to bear an additional cost of $130 million to develop infrastructure for its expansion programme. It was essentially the government’s duty to construct this infrastructure facility.

Since then, this higher tariff of 15 per cent on PTA had proved to be a major stumbling block in the fast growth of the polyester sector in the country. It has become a major cause for smuggling of synthetic cloth into Pakistan.

The polyester manufacturers are presently working with five per cent differential in tariff. The PTA carries a duty of 15 per cent and PSF 20 per cent. Under the proposal the five per cent differential will be maintained as there would be zero per cent duty on PTA (raw material) and five per cent on PSF (finish products).

Finalized with the consent of all stakeholders after extensive discussion, the proposal offered advance of payment to ICI amount equivalent of 15 per cent duty on PTA. It will be a monthly payment on actual sale of PTA in the domestic market.

This proposal did not receive a favourable response from the finance ministry last year. The textile leaders have started fresh moves to persuade the government a review of this proposal in the emerging scenario.