The Federal Board of Revenue has introduced a new duty structure applicable on polyester chain from July 1, 2008. Under the new tariff scheme announced for the polyester chain, duty on pure terephthalic acid (PTA) and Polyester Stable Fiber (PSF) has been reduced to 7.5 percent and 4.5 percent from 15 percent and 6.5 percent respectively.
The existing duty structure on remaining items of the polyester chain i. e., paraxylene, acetic acid, MEG, polyester chips both yarn and bottle grades, PET performs, PET bottles, PFY (polyster filament yarn) and polyester fabrics may remain un-changed. The exporters using imported PTA in the manufacture of exported goods are to be paid normal duty drawback.
To offset the impact of 7.5 percent PTA duty on textile exports of the country manufactured from locally procured PTA, the Polyester Staple Fiber manufacturers will be given R&D support by Ministry of Textile Industry through State Bank of Pakistan in line with framework prevalent in this regard. The above scheme would be adopted from July 1, 2008 which is being approved by the stakeholders.
Details revealed that the M/s ICI Pakistan set up PTA plant after agreeing an incentive package with Board of Investment in 1994. The original package fixed duty on paraxylene, raw material for manufacturing PTA, at 5 percent and tariff on PTA on 25 polyester chain. While the plant was under construction, in textile package of November 1996, a new tariff arrangement was negotiated reducing the net tariff protection to 15 polyester chain with paraxylene at 0 polyester chain and PTA at 15 polyester chain.
Due to this tariff structure, polyester based textile exports from the country became expensive. Since 80 polyester chain of the PTA demand was met from local procurement, the normal duty drawback system did not adequately zero rate the impact of customs tariff chargeable @ of 15 polyester chain. In order to enhance the competitiveness of the textile sector, a special mechanism for zero rating of customs duty was designed by introducing a new clause (ab) in Section 21 of the Customs Act which provided for payment of any amount to the importer of local buyer of any goods in order to compensate any commitment for levy of customs duty.
Thereby eight consumers of PTA, which includes PSF manufacturers, were given payment of 15 polyester chain customs duty on import and focal purchase of PTA. The commitment of the government given to M/s PPTA plant is going to expire on 30-06-2008. There is, therefore, need to devise a new tariff structure for PTA and polyester chain and review the existing up front zero rating system.
The National Tariff Commission (NTC) conducted a study on this sector and proposed that duty on import of PTA may be reduced from 15 polyester chain to 10 polyester chain with continuation of zero rating, present rate of 3 polyester chain duty on polyester chips may be continued with extension of zero rating. The rate of customs duty on import of PSF may be increased to 8 polyester chain and on import of PFY from 9 polyester chain to 10 polyester chain. Ministry of Commerce has proposed 7.5 polyester chain duty for the PTA with no change on the remaining items of the polyester chain and continuation of the upfront zero rating on PTA and polyester chips. It has further suggested that customs duty on PTA may gradually be reduced by 0.5 percent polyester chain every year to bring it to 5 percent.
The recommendations of NTC and Ministry of Commerce have been examined and after detailed deliberations amongst ministries of Textile, Commerce, Industries and FBR, it has been agreed on a new duty structure on polyester chain.
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