KARACHI, July 2: A major anomaly has been detected in the policy with the imposition of a 10 per cent federal excise duty on import of viscose staple fibre and its local production.
There was already a five per cent customs duty on viscose staple fibre import which takes the total impact of duties to 15 per cent.
Against this, there is only a seven per cent customs duty on import of viscose yarn. This anomaly, according to sources, is damaging the local spinning industry.
The Central Board of Revenue only two days after the approval of the Finance Bill 2007-08 imposed a 10 per cent excise duty through a notification without taking into confidence the stakeholders.
According to trade bodies representing spinners and exporters of value-added textile goods, the anomaly favours import of finished yarn of viscose over staple fibre.
This means that the spinning industry would suffer as it would not be able to compete with imported cheap viscose yarn.
The country last year imported around 30,000 tons of viscose when the world market was quoting its price at $1.65 per kg.
However, prices of viscose staple fibre, due to its shortage this year increased to $2.65 per kg which will ultimately discourage imports.
Presently, there are only two manufacturers of viscose staple fibre — Chemi-Viscose and Rehmat Wazeer — but the former is out of operation for the last two to three years. But even if the unit was in operation, the federal excise duty would not have been applicable on it as it is located at Nawabshah’s free industrial zone.
The rated capacity of Chemi-Viscose is 10 tons per day but the plant is closed. The capacity of Rehmat Wazeer is 200 tons per day, but it is operating at 20 tons per day.
The duty structure on viscose chain is as follows:
On viscose staple fibre, there is five per cent customs duty and 10 per cent federal excise duty (FED) which means 15 per cent levy on viscose staple fibre while in case of viscose yarn, the customs duty is seven per cent. On viscose fabric, the customs duty is 15pc; and on viscose garment, there is a 25pc customs duty.
This shows that import of viscose yarn is cheaper as it carries a seven per cent customs duty only, whereas import of viscose staple fibre after the imposition of 10pc FED along with five per cent customs duty is costlier at 1pc.
The spinners, while taking strong exception to the imposition of 10 per cent FED on import and locally produced viscose staple fibre, feel that import of viscose yarn will be made at the cost of local spinning industry.
It has also been pointed out that the spinners do not have any objection over CBR’s moves and intention to protect the local manufacturers of viscose staple fibre, but demand that no such move be taken at the cost of spinning industry.
In view of this, the trade bodies have asked the CBR that if local producers of viscose staple fibre have to be extended support, this should be done by way of direct subsidy on actual clearance of product for domestic consumption.
As domestic production of viscose is currently only 20 tons per day which will only have an impact of a very small amount of Rs11.44 million per annum on the national exchequer.
By adopting this formula, the trade bodies feel that this will also encourage domestic producers to start or expand their production.
At its peak of 30,000 tons, the total amount is likely to be around Rs480 million, minus duty drawback, which the government is already committed to pay.
This subsidised amount will be much less once the world market prices stabilise.
A leading exporter of blended made-ups, Iqbal Mangrami said that on the one hand, the government encourages industry to diversify its products, and on the other the industry was being punished for doing so by introducing such tax and duty structures.He further said that hardly 30 spinning units are presently importing viscose staple fibre for producing blended yarn which could be verified by the customs record.