PAKISTAN: Five percent regulatory duty may be withdrawn from SKP despite opposition

 The federal government is likely to withdraw 5 per cent Regulatory Duty (RD) on Sack Kraft Paper (SKP) despite stiff opposition by the Ministry of Industries and Production (MoI&P), sources close to Secretary Industries told Business Recorder.

The sources said M/s Cherat Paper Sack Limited, M/s Thai Limited (Pakistan Paper sack Division) and M/s Nishat Paper Products Co Ltd have requested for withdrawal of 5% RD on Sack Kraft Paper (SKP) falling under Customs Tariff Headings 4804.2100 and 4804.2900 levied vide SRO 482(1)/2009 on the following grounds:

a) Imported SKP, is a raw material for the manufacture of high performance multiply paper-sacks by the local manufacturers. b) Only M/s Flying Paper Mills Charsadda manufactures low quality sack kraft paper in the country. Its production caters to only 4-5units (3-5% of the total demand); remaining twenty-odd units are actually using bags manufactured from imported SKP.

c) PP bags, being substitute of paper sacks meet 40% of demand; resultantly cement manufacturers may opt for PP bags as alternative.

d) 15% duty spread already available between the raw-material of Sack Kraft Paper and the finished product has been affected by imposition of 5% RD. e) Imposition of 5% RD would seriously impact the feasibility of manufacturing unit in Gadoon for manufacture of additional 265 m bags/ year.

According to sources 15% RD was imposed on Sack Kraft Paper vide SRO 105(1)/2009 dated 03-02-2009 to protect the local industry which was under pressure due to cheaper imports. The RD was however, withdrawn vide SRO 198(I)/2009 dated 28.02.09 on the representation of sack kraft paper manufacturers to correct the anomalous situation as the cumulative tariff structure on SKP (Customs duty + Regulatory duty) was 30% as against the paper sacks which attracted duty @ 25%. However, RD @5% was re-imposed on the said item vide SRO 482(I)/2009 in the budget to give some protection to the local industry manufacturing sack kraft paper.

After the imposition of RD on Sack Kraft Paper's raw material, the total incidence of duty on SKP (raw material) and bags (finished product) is 20% and 25% respectively. This provides a spread of only 5% between raw material and finished product, thereby creating an anomalous situation for local manufacturers of SKP.

The sources said quantity imported in FY 2008-09 decreased by 25.37% and the unit value increased by 41.4% over the FY 2007-08. Thus both in terms of quantity imported and the value of imports, there is hardly and immediate threat to local industry.

All Pakistan Cement Manufacturers Association (APCMA) being a direct stakeholder in the issue have also pointed out that against total annual demand of SKP ie 55,000 MTs, approximately 5000 MTs (about 9%) is being manufactured locally catering to partial requirement of 2-4 mills only while other units are dependent on cement sacks manufactured from imported SKP. Thus, on the touchstone of local production-to-import ratio also, the imposition of RD is not justified.

The sources further stated that Engineering Development Board (EDB) has also recommended withdrawal of RD on the ground that there was already a spread of 15% duty available to local manufacturer of SKP as most of the basic raw materials of paper industry are importable @ 0% duty. But RD imposed on SKP has narrowed down the spread between SKP raw material and finished product putting entire SKP bag manufacturing industry at a disadvantageous position.

" Imposition of RD @ 5% has not provided any protection to the local industry rather it has been detrimental to entire SKP bag manufacturing industry. It is, therefore, has been proposed that 5% RD levied on Sack Kraft Paper (PCT headings 4804.2100 and 4804.2900) may be withdrawn for SKP bags manufacturer," the sources added.