The entire ghee industry in Pakistan has been paralysed reportedly by heavy burden of duty structure imposed by the government which is almost 75 percent of the C&F value.
Talking to Business Recorder, the industry sources said Pakistan imports about 70 percent of its edible oil requirements to run its ghee industry.
In spite of the fact that the local production of edible oil is not enough, the incidence of the duty structure is very heavy, they said.
The sources said: "It clearly means that import of edible oil is generating heavy revenue for the government amounting to Rs 2.58 billion per annum.
Recently, the government has given certain duties exemption on the edible oil import in the shape of DTRE (Duty and Tax Return Exemption), and oil meant for ghee industries in Fata/Pata. Such exemptions have proved counter-productive due to misuse of facilities.
"The DTRE facility which is 'no duty no drawback' is meant for export of ghee to Afghanistan. The government has allowed duty-free and GST-free import of palm oil under DTRE rules for ghee export to Afghanistan.
"This exemption has opened Pandora's box as ghee, which is meant for export is ultimately sold in the Pakistan market.
This has created a crisis in local markets as there is no level playing field between the importers of edible oil, who have to pay around 75 percent duty plus GST, and the one, who is exempted from duty to import edible oil."
The market sources are surprised at the wisdom of policy-makers in allowing someone to get 75 percent duty exemption and export ghee. This, in fact, is a great motivation to misuse the exemption.
Such folly on the part of the government has resulted in the over import of palm oil, glut in the local markets and the closure of solvent extraction plants. Only last week, the solvent industry decided to close their operation by February 10, 2004, if the government does not stop DTRE and rectify the situation.
Similarly, the government policy to give exemption of GST on edible oil import for ghee industries located in Fata/Pata areas is an another blunder. This is a pure political decision which is ruining the industry.
The ghee industries located in Fata/Pata areas are hardly operative; however, these industries are importing oil and avail full exemption of GST and sell oil in the local markets, thus not only depriving the government of large revenue, but also flooding the local market.
The market sources believe that the government should act fast and stop DTRE facility for export of ghee to Afghanistan. In any case, Afghanistan's requirement of ghee per year is hardly 50,000 tonnes, and that market is served by Iran and Dubai.
Pakistan being net importer of edible oil cannot justify exporting ghee with duty exemption.
In fact, Pakistan should act as the gateway for transit facility to Afghanistan importers of edible oil.
Similarly, there should be no GST exemption for Fata/Pata areas, they should develop a fool-proof system of sales tax refund to these units, who produce ghee and not sell edible oil.