The Pakistan Polypropylene Association (PPA) has criticised the government policy towards the Karachi Export Processing Zone (KEPZ) PP units and demanded of the CBR that it should withdraw SRO 410 to ensure a level playing field to the tariff area industry. Zonal chairman Sikander A. Khan, in his letter addressed to the CBR chairman, said PP units in KEPZ enjoy the most lucrative incentives. Conversely, manufacturers in the tariff area pay 65 percent customs duty.
The government reduced the duty to 35 percent for 150 PP units along with 15 percent sales tax on plant and machinery, civil works also included customs duty, excise and sales tax, electricity, gas and infrastructure.
On the contrary, PP projects in KEPZ were granted 100 percent concession in duties to enable them to sweep the domestic market and leave the tariff area industry in complete disarray.
The PP industry in the tariff area imports polypropylene granules (H.S. Code 3902-10000000), at the rate of 10 percent customs duty, 15 percent sales tax, whereas, KEPZ polypropylene units were allowed to import raw material at zero-rated customs duty and sales tax, which put them at advantageous position to produce PP sacks at much cheaper rates compared to the PP units in the tariff area. This was extremely unfair and contrary to the CBR DTRE scheme.
The CBR needed information regarding quantum of PP granules consumed in the KEPZ for the production of PP products and its 80 percent export abroad during last 10 years.
The chairman said the association's efforts to get information from the KEPZ regarding the number of PP manufactures, export of PP sacks and fabric, foreign exchange earned by units falling in the KEPZ, export of PP products to the local companies for re-export remained unattended.
The latter said the 150 PP sacks manufacturers in the tariff area were vulnerable to misuse of the facility by the 6 PP units in the KEPZ.
It said the association drew the CBR's attention towards the massive smuggling/tax evasion due to the inclusion of polypropylene sacks under SRO 410.
The letter added that 150 large and medium size polypropylene factories can meet the entire requirement of local and export packaging.
It maintained that the SRO 410 was meant to facilitate exporters in the tariff area to import raw material, component and packaging material duty free that are not produced locally.
Despite clear policy announcement, polypropylene woven sack was included in SRO 410, which provided loopholes for massive smuggling and tax evasion of polypropylene sack/cloth (raw material as well as finished products) from the KEPZ.
The letter added that industrialisation in the KEPZ was subject to the condition that only 20 percent of the production would be sold in the tariff area and the rest 80 percent will be exported.
To encourage investors, the plant and machinery and civil works were also exempted from the levy of customs duty, excise and sales tax, electricity and gas connections were given at concessionary rates.
All these facilities were provided to manufacturers in the KEPZ at the doorstep. As an incentive, each manufacturer in the KEPZ was allowed import of two duty-free cars. The KEPZ polypropylene units were indulged in massive smuggling of PP granules, fabric and finished goods at the cost of billions of rupees to the GOP for the last 10 years.
It reminded that the government had assured the Pakistan Polypropylene Association that SRO 461(1) 2004, issued in the budget 2004-05, would be implemented to remove the anomaly and instead the CBR issued SRO 410 to the KEPZ polypropylene units to give them clear advantage over the tariff area.
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