ISLAMABAD, April 4: The government has decided to allow compensatory duty drawback on polyester staple fibre (PSF) in violation of Customs Act which could cause substantial economic loss to the national exchequer.

Official sources in the Finance Ministry told Dawn on Thursday that Central Board of Revenue (CBR) had already shown its reservation on the decision.

The duty drawback was allowed under section 21 (C) of Customs Act, 1969 to the extent of customs duty paid on imported raw materials/input materials used in the manufacturing of goods meant for export.

Similarly, under WTO agreement on significant customs procedure, which turned it as subsidy and not allowed under the law.

Meanwhile, chairman CBR Riaz Ahmed Malik when contacted said that exporters were already given maximum duty drawback rates on exportable goods, which he said, needed to be scaled down to normal in order to avoid the losses to the national kitty.

Malik said that the rates were ultimately to become normal at the fourth stage, which was frozen at the second stage to give some relief to the exporters following the September 11 incident.

The deduction in the duty drawback rates, which was due from January 1, 2002 and April 1, 2002 had been held in abeyance.

The chairman, however, admitted that allowing of compensatory duty drawback could certainly cause a loss of around Rs1 billion annually to the national exchequer.

All Pakistan Textile Manufacturing Association (Aptma) was demanding to allow repayment of duty drawback on the locally produced PSF, adding that the domestic procurement of PSF should be treated as deemed as imported, which was not admissible under the Customs Act.

According to the officials the duty drawback was allowed on imported PSF only but the same was being allowed against the relevant rules to provide benefits to textile manufacturers.

According to the law, the local produced could not be treated as imports for the purposes of duty drawback, while the tax authorities could only allow repayment of customs duty actually paid on the imported components of such locally produced PSF.