The government is likely to allow, in the forthcoming budget, refund of 15 percent import duty, charged on PTA imports, to producers of polyester staple fibre (PSF) who used or purchased the duty-paid raw material, it is learnt. The Government of Pakistan had given 10-year 'protective duty' to ICI in 1998 for establishing a PTA plant in Karachi. Textile industry has been demanding abolition of this protective duty enjoyed by Pakistan PTA, as it increases the cost of PSF produced locally.
At present, PSF attracts 20 percent import duty, while PTA & MEG attract 15 percent and 10 percent import duty, respectively.
Though the government is willing to reduce the import duty on PSF to 15 percent from 20 percent, in order to boost textile exports in the quota-free regime, it is facing difficulty in cutting the protective duty on PTA, without buying back the sovereign guarantee provided to Pakistan PTA. The guarantee will expire in June 2008.
The choice before the government is either to pay the total protective duty amount, under the guarantee, for the differential period, or reduce the duty to 5 percent, from 15 percent, under a partial buy-out. But the authorities feel that if fiscal intervention in the polyester chain comes to an end, the better it would be for the textile industry.
In order to make the textile exports competitive, the budget is expected to remove all distortions within the textile chain. While GST is being removed across the chain, the government plans to provide 15 percent rebate on all sales made by PSF producers to the weaving industry in order to keep the PSF price as close to the international market as possible. In effect, it will refund the duty paid on locally produced PTA as well as PTA imported by the five fibre producers. They are: Dewan Salman, Ibrahim Fibres, ICI, Pak-Synthetic and Rupali.
The local PSF industry has been facing an over-supplied situation for the last two years. Due to a bumper cotton crop in FY05, consumption of PSF had further come down. PSF prices have been high on account of higher oil-related PTA & MEG prices, which made PSF even more expensive than cotton. During this season--October to May--average cotton price was Rs 56/kg as against average PSF price of Rs 93/kg. In the same period a year ago, cotton was Rs 83/kg while PSF price was Rs 74/kg.
With Ibrahim Fibre doubling its capacity and ICI working on plant optimisation and BMR, market analysts expect a glut in PSF production. However, in case Pak PTA is sold to Ibrahim Fibre, its production capacity would surely be doubled.
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