Import of raw material, machinery: two companies oppose grant of concessions to Procter & Gamble

Unilever (Pakistan) and Colgate Palmolive have opposed any unfair, unwarranted and unconstitutional concession or relief to Procter & Gamble (P&G) on the import of raw material and machinery. In separate letters to the Board of Investment, the two competing multinational companies have expressed shock and disbelief that such concessions could be offered to only one company, and have demanded that similar relief should be granted to them as well.
In the meanwhile, they have requested the authorities to withhold any further action of fiscal incentives to P&G until a fair and equitable modus operandi is agreed upon. Otherwise, it will leave them with no option but to pursue a legal recourse to obtain a level-playing field.
Referring to the possible grant of fiscal incentives, Unilever Pakistan said: "Unilever is one of world's largest consumer goods companies operating in over 80 countries. Unilever Pakistan Limited, a subsidiary of Unilever PLC of United Kingdom is the largest consumer goods company in Pakistan.
It was established in 1948 and is quoted on the Karachi and Lahore Stock Exchanges. We employ 1,300 people on our payroll and many thousands through our partners. In Pakistan we have three of our own factories and several co-packers producing over 90% of consumer products sold locally.
In 2008 we contributed Rs 8,430 million (representing 63% of the value generated) to the Government of Pakistan through income and other taxes and customs duty. Whilst in principle we support incentives to attract investment both by foreign as well as local investors, we find the BOI's current request to FBR, Ministry of Finance and Ministry of Industries to grant P&G fiscal incentives as grossly unfair, unwarranted and unconstitutional for the following reasons:
1. Granting P&G fiscal relief would create an uneven playing field between various competitors in the two sectors, namely Laundry and Diapers. Unilever Pakistan, also a subsidiary of a foreign company has invested significant amounts in establishing and expanding its production facilities for consumer products, including Laundry, in the country and no fiscal relief of the type now proposed for P&G was provided to us.
2. Fiscal relief should be granted to all investors in an industry, not to specific investors, much less to those from a certain country. Otherwise it is discriminatory, unfair and unconstitutional.
3. If P&G is to be granted relief, particularly retrospectively, then so should all investors in the consumer product industry. In recent years we have invested Billions on imported plant and equipment on which several millions of rupees have been paid by way of import duty. Details of this can be provided and the duty paid should be refunded to us.
4. We are also contemplating investing several hundreds of millions of rupees on imported plant in the next 18-24 months. If P&G is given favourable treatment on import duties, the same should be offered to us.
5. P&G has been doing business in Pakistan for more than 20 years and it has already established a market presence. Not being a new entrant to the country, there is no justification for providing out-of-the way and exceptional assistance to it.
We also note that P&G is seeking concessional import duty for certain raw materials on the premise that higher utility costs, weaker Rupee, higher financial costs etc, have impacted the feasibility of its operations. The aforementioned reasons apply to all industries. If P&G is to be granted concessions, please note that the same principle should apply to us."
Protesting the BOI recommendation to grant relief to P&G, Golgate Palmolive said: "This company (P&G) managed to get away with a 25% customs duty (instead of 35%) on the import of diapers, with no regulatory duty (15%) imposed on all luxury items in August 2008, even though diapers are categorised as a luxury as Pakistan is a poor developing country.
Resultantly P&G dominates the market for the item. Procter and Gamble (P&G) used its influence with the FBR to keep the Customs Duty on the import of finished and packed detergent powder at 25% while on the import of finished soap and hair shampoos the duty was raised to 35%.
P&G which is the largest importer of packed detergent powder did not stop at this major concession but also managed to ensure that, Regulatory Duty of 15%, on the import of finished soap and shampoos was not imposed on packed detergent powder imports. We are still pursuing the authorities for the removal of this anomaly.
It now appears that the Board of Investment (BOI) is lending support for their claims to be installing a manufacturing plant at Port Qasim, for detergent powders and baby diapers 'supposedly' costing US dollars 100 million and is recommending massive exemptions in customs duties and taxes on already cleared shipments.
Very strangely this company has not provided to the government any 'commitment guarantees' for exports nor has given 'internationally' certified details for the authenticity of actual equipment costs claimed to be valued at US dollars 100 million. The BOI is now suggesting to the FBR to grant a zero percent customs duty on the 'import of machinery and raw materials' to this company without any justification.
We feel that such an extraordinary preferential treatment cannot be the policy of the BOI and merits not only a contradiction of the news report but an assurance to us, since we are also major manufacturing company producing Fast Moving Consumer Goods (FMCG) which include detergent powders, soaps, tooth paste, dish washing bars etc.
We are a joint venture company with a major US company, Colgate-Palmolive Company, USA. The total investment in our plant, machineries, brand franchises, etc since inception is over US dollars 110 million. We provide employment to over 2000 persons and contribute over Rs 1.86 billion in the shape of direct and indirect taxes.
The above stated amounts include an ongoing expansion programme for our detergent powder producing capacity which is in progress and will cost US dollars 20 million. We are confident that you will review the unjustifiable support to Procter and Gamble in the interest of fairplay and equal treatment in competitive businesses in Pakistan."