19 June 2004	Saturday	30 Rabi-us-Saani 1425

KARACHI, June 18: Tea blenders are busy in calculating the price cut in tea packets in the wake of government's decision to bring import duty on tea to 10 from 20 per cent in the 2004-2005 budget.

A leading packer, on condition of anonymity, said that working on price cut was still going on and it would take some time as they were waiting clearance of old stocks which had been brought at old import duty rate.

Usually markets have six to eight weeks tea stocks lying with retailers, packers and distributors. The price cut is only possible when major portion of old stocks are cleared, he said.

Former chairman, Pakistan Tea Association (PTA), Mohammad Hanif Janoo said that the local tea market had already witnessed a decline of Rs10-11 per kg in loose imported tea while blenders were likely to follow suit.

He said the cut in import duty would bring around 30,000 tons of tea into the legal net from the illegal arrivals. Illegal arrivals of tea is estimated at 40,000-45,000 tons annually. The country's total annual tea consumption is around 140,000 tons.

The chairman, PTA, Saeed Ahmed Khawaja said the tea market had received the duty cut decision at a time when illegal tea arrivals form Afghan Transit Trade (ATT) had been gaining momentum. The budgetary decision would definitely flourish legal trade and discourage illegal entry of tea from the ATT.

"I think tea smuggling will come down by 80-90 per cent due to 50 per cent cut in import duty," PTA chief said adding that the cumulative impact of taxes and duties on C&F Karachi price of Kenyan tea has declined to 32 from 52 per cent prior to import duty cut.

He said the landed cost of Kenyan tea had also plunged to Rs155 per kg from Rs178 per kg. Government's revenue collection from tea imports might decline with a scant percentage because a large portion of smuggled tea arrivals would automatically find way through legal channels as a result of import duty cut.

Smugglers must now be biting their nails owing to government's decision but they still have a narrow chance to keep dumping tea from various sources. Tea smuggling would not be eliminated completely and some quantities might still arrive through Afghan Transit Trade (ATT), Saeed said.

He recalled that the PTA had already called for drastic cut in import duties on tea in May over reports that 345 containers of Kenyan black tea weighing 5.17 million kgs had arrived from Mombassa.

"The government has finally realized the negative effect of the ATT on the economy and the trade and made duty cut to boost legal activities in tea trade," he said. A leading packer, who declined to be named, said that in 2003 around 25,000-30,000 tons of smuggled tea arrived in Pakistan and the volume had reached to 40,000-45,000 tons till May 2004.

"I think tea smuggling from ATT route would still range between 10,000-14,000 tons after import duty decline," he said. He said that legal imports might go beyond 130,000 tons in 2004 from the 115,000 tons in 2003 calender year due to timely government's decision in 2004-2005 budget. He said that the company is considering cut in tea prices.

Invest Capital and Securities in its post-budget scenario report said that the import duty cut on tea to 10 per cent from 20 per cent is the third consecutive year of reduction in import duty from 30 per cent level. The primary objective of the government is to discourage smuggling.

A cut of 10 per cent import duty would result in saving of Rs19 per kg for the Unilever. Some of this would be retained by the company and thus help in improving margins at a time of declining profitability of Unilever, the report said.

Unilever is currently facing serious problems on multiple fronts. Recent entry of Tetley tea in an already competitive tea market has escalated sales promotion costs. Other smuggled items are also hurting revenues.