CBR chairman Abdullah Yousaf and the representatives of Pakistan Vanaspati Manufacturers Association (PVMA) at a crucial meeting have agreed to evolve a new blending ratio formula for hard and soft oil/ghee to make it the basis for future duty drawback/sales tax in the federal excise duty return.
CBR officials have accepted the ghee industry's demand for a review of SROs that are adversely impacting ghee exports to Afghanistan, and have agreed to constitute a three-member committee to consider the issue on a priority basis. The negative impact of SRO 993(1) 2006 in reducing duty drawback on ghee exports to Afghanistan has also been discussed at the meeting, with the two sides agreeing that duty drawback and sales tax/federal excise duty refund will be reviewed biannually.
Further, the two sides have agreed that sales tax on utilities will be included in the rebate. Meanwhile, the CBR chief has ordered, as a goodwill gesture, the immediate payment of sales tax/federal excise duty refunds held up since December 2005. Incidentally, inordinate delays in payment of duty drawback and refunds on ghee exports to Afghanistan have been a major irritant for ghee exporters, who have frequently complained about CBR bureaucracy's delaying tactics.
Abdullah Yousaf's order for prompt payment of refunds has in a way vindicated the ghee exporters' position on the issue. Incidentally, Pakistan is the world's fourth largest importer of edible oil, with oil imports accounting for the second largest chunk of the country's import bill after energy resources.
This shows the crucial importance edible oil imports have in the country's economy. The expenditure incurred on edible oil imports during the last five years has annually ranged between $413.4 million and $856 million.
Vegetable ghee exports to Afghanistan by Pakistani manufacturers have been a rather problematic area in that about 25 percent of the ghee exported is smuggled back to the local market. The federal government pays rebate of Rs 9,681 and refunds Rs 5,382 sales tax on export of one metric ton of vegetable ghee to Afghanistan, while the local manufacturer on an average gets about Rs 75 on a five kilogram tin of ghee.
According to available data, the federal government had to pay Rs 1,610 million in rebate against export of 166,544 metric tonnes of vegetable ghee to Afghanistan in FY2005-06, and will refund Rs 890 million under the head of sales tax. As pointed out earlier, a huge quantity of exported ghee is smuggled back into Pakistan via various tribal agencies.
It is said that many exporters somehow manage to bring back their consignments after completing the procedural requirements to obtain rebate on their consignments and later offer these for sale at substantially reduced prices.
This has put local ghee marketing companies at a huge disadvantage. Many ghee manufacturers are of the view that the return of ghee exported to Afghanistan can cripple the local industry, as the differential between the rates of ghee produced for local consumption and the smuggled ghee marketed locally is quite substantial.
Secondly, as a new blending ratio formula will shortly be worked out at a meeting to be held in Karachi for computing refunds and duty drawback payments in future, it is essential for the two sides to try to iron out all differences between them on the issue.
CBR should plug all lacunae and loopholes in its existing procedural mechanisms that allow misuse of various rebates and exemptions allowed by the government. The CBR authorities should exercise greater vigilance to block all possibility of misuse of such incentives. It is hoped the forthcoming CBR-PVMA meeting at Karachi will be quite fruitful.