10pc duty imposed on Chinese petroleum

Published June 4, 2022
Finance Minister Miftah Ismail chairs a meeting of the Economic Coordination Committee on Friday. — PID website
Finance Minister Miftah Ismail chairs a meeting of the Economic Coordination Committee on Friday. — PID website

ISLAMABAD: Pakistan on Friday imposed a 10 per cent regulatory duty on the import of petroleum products from China after a massive 673pc surge in duty-free imports to Rs250 billion this year with a revenue loss of Rs25bn under the garb of the China-Pakistan Free Trade Agreement (CPFTA).

A decision to this effect was taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet which also approved almost Rs147bn worth of supplementary grants including Rs81bn additional funds to defense services for expenditure before June 30.

The meeting, presided over by Finance Minister Miftah Ismail, also approved a summary for the grant of an unspecified amount of honorarium to officers and staff of the ministry of finance and revenue board. The decisions came a day after the government increased petroleum prices to reduce the budgetary burden.

Under the country’s import policy, petroleum products attract 10pc customs duty on imports while an equivalent 10pc deemed duty is applicable on local production of these products by domestic refineries. However, the CPFTA signed in 2019 provides duty exemption to thousands of items in bilateral trade also including petroleum products.

ECC approves Rs147bn in supplementary grants

It is not clear yet as to how and why the petroleum imports were made part of the revised CPFTA in 2019 when China is a net importer of oil and these products were not even in the original FTA signed in 2006 and then revised in 2016. It is also strange that such a facility is not part of FTA with Malaysia which is a major oil producer and exporter.

OMCs increase imports from China

Informed sources said the ECC was told that due to the waiver of customs duty under CPFTA, some of the oil marketing companies (OMCs), particularly a multinational, had increased their imports of petrol from China by availing the benefit of the CPFTA. The government could not do anything against OMCs given such sourcing from China was legal under CPFTA even though the importers availing the FTA exemption pay zero customs duty while others pay customs duty at the rate of 10pc.

This results in a price saving of about 10pc on petrol imports from China and the differential is retained by the OMCs as windfall profit instead of its benefit reaching the exchequer or the consumers. Depending on the international petrol price published in Platt’s Oilgram, the gap currently goes up to Rs20 per litre.

At the time of preparation of the summary, it was reported that such imports increased from Rs30bn in FY21 to Rs232bn with an Rs23bn negative revenue impact to the Federal Board of Revenue (FBR) in FY22.

It was, therefore, decided by the ECC to impose 10pc regulatory duty on the import of petrol where customs duty was zero. However, the import of petrol where customs duty at 10pc is paid will be exempt from the levy of regulatory duty. The Tariff Advisory Board had already cleared the proposal on February 28, 2022.

Interestingly, the key purpose of the free trade agreement between the two friendly countries signed on April 28, 2019 was the promotion of fair trade competition. China itself is a net importer of petroleum products including petrol and transportation cost to Pakistan is relatively higher than that of the Middle East. Yet this provides a substantial cushion to the OMCs. The current position under the CPFTA is valid for four years — starting Jan 1, 2020 to Dec 31, 2024.

Collection of uility bills

The ECC also approved a summary of the Ministry of Communication for clearance of Rs37.33bn remaining funds out of a total of Rs62.33bn seized by the Ministry of Finance through procedural gimmickry collected as utility bills by the Pakistan Post on behalf of power distribution companies.

The ECC was told that clearance of these liabilities of the utility companies, particularly power distribution companies and agency partners of the Pakistan Post Office Department (PPOD) was urgently required as these funds did not belong to the federation but bills collected from consumers on behalf of Discos.

It was reported that the collection of utility bills was one of the agency functions performed by Pakistan Post and the amount thus collected was deposited in SBP’s Central Account-1. Liabilities to the tune of Rs62.33bn have been accumulated till March 31 this year owing to the changed mechanism under the Public Finance Management Act 2019. Rs25bn had already been approved on April 15 for payment to utility companies.

The ECC ordered payment of Rs37.33bn for clearing the remaining outstanding liabilities of the utility companies or agency partners of Pakistan Post after verification of claimed amount by SBP.

The ECC also approved the release of Rs621 million for making payment of gas bills to SSGCL for gas supplies to Pakistan Steel Mills for eight months (July-February) at the rate of about Rs80 per month. PSM is being provided low flame gas of 2MMCFD by SSGC due to the closure of the production activity primarily to preserve the Coke Oven Batteries and refractories kilns.

The ECC also approved about 17 other supplementary grants worth Rs146bn including 10 with an additional financial burden of about Rs122bn. This included about Rs81bn to defence services to meet critical shortfall during the current fiscal year and Rs40.5bn to exporters under the previous government’s duty drawback schemes (DLTL and LTLD etc) cleared by the State Bank of Pakistan.

On the recommendation of the Ministry of National Food Security & Research, the ECC also approved up to 2.67pc increase in the tobacco cess for the 2022-23 crop. Under the decision, the cess on flue-cured Virginia tobacco was to Rs6 per kg, showing an increase of 2.45pc and 2.13pc on the plain area and sub-mountainous area.

Published in Dawn, June 4th, 2022

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