A 10% duty imposed on Chinese oil
ISLAMABAD: Pakistan on Friday imposed a 10% regulatory duty on the import of petroleum products from China after a massive 673% increase in duty-free imports to 250 billion rupees this year with a loss of revenue of 25 billion rupees under the guise of the China-Pakistan Free Trade Agreement (CPFTA).
A decision to this effect was taken at a meeting of the Cabinet’s Economic Coordination Committee (ECC) which also approved nearly Rs 147 billion in additional grants, including Rs 81 billion in additional funds to defense services for expenses before June 30.
The meeting, chaired by Finance Minister Miftah Ismail, also approved a summary for awarding an unspecified amount of fees to officers and staff of the Ministry of Finance and Revenue Council. The decisions came a day after the government raised oil prices to ease the fiscal burden.
Under the country’s import policy, petroleum products are subject to a 10% customs duty on imports, while a deemed equivalent duty of 10% is applicable to the local production of these products by national refineries. However, the CPFTA signed in 2019 provides duty-free treatment for thousands of items in bilateral trade, including petroleum products.
ECC approves Rs147 billion in additional grants
It is not yet known how and why oil imports were included in the revised CPFTA in 2019 when China is a net importer of oil and these products were not even included in the original FTA signed in 2006 and then revised. in 2016. It is also strange that such a facility is not part of the FTA with Malaysia, which is a major oil producer and exporter.
JIs increase imports from China
Informed sources said that the ECC had been informed that due to the exemption of customs duties under the CPFTA, some of the Petroleum Marketing Companies (OMC), in particular a multinational, had increased their gasoline imports from China by taking advantage of the CPFTA. The government could do nothing against JIs since such sourcing from China was legal under the CPFTA, even though importers benefiting from the FTA exemption pay no customs duty while others pay customs duties at the rate of 10%.
This translates into a price saving of around 10% on gasoline imports from China and the differential is retained by the WTO as windfall profit instead of its benefit reaching the national treasury or consumers. According to the international petrol price published in Platt’s Oilgram, the gap is currently rising to Rs20 per litre.
At the time of preparation of the summary, it was reported that such imports increased from Rs 30 billion in FY21 to Rs 232 billion, with a negative impact of Rs 23 billion on Federal Board revenue of Revenue (FBR) in FY22.
It was therefore decided by the ECC to impose a statutory duty of 10% on the importation of gasoline where the customs duty was zero. However, the importation of gasoline for which a customs duty of 10% is paid will be exempt from the levy of the regulatory duty. The Tariff Advisory Board had already approved the proposal on February 28, 2022.
Interestingly, the main objective of the free trade agreement between the two friendly countries signed on April 28, 2019 was the promotion of fair trade competition. China itself is a net importer of petroleum products whose gasoline and transportation cost to Pakistan is relatively higher than that of the Middle East. Yet it provides a substantial cushion to the CMOs. The current position under the CPFTA is valid for four years – from January 1, 2020 to December 31, 2024.
Collection of electricity bills
The ECC also approved a summary from the Ministry of Communication for the clearance of the remaining funds of Rs37.33 billion out of a total of Rs62.33 billion seized by the Ministry of Finance through procedural gadgets collected in the form of invoices utilities by Pakistan Post on behalf of power distribution companies. .
The ECC has been informed that the clearance of these liabilities from utility companies, especially electricity distribution companies and partner agencies of the Pakistan Post Department (PPOD), is urgently required as these funds did not belong to the federation but the invoices collected from consumers on behalf of Discotheques.
It was reported that the collection of utility bills is one of the agency functions performed by Pakistan Post and the amount thus collected is deposited in the Central Account 1 of SBP. Liabilities of Rs 62.33 billion have been accrued till March 31 this year due to the amended mechanism under the Public Financial Management Act 2019. Rs 25 billion had already been approved on April 15 for payment to utility companies.
The ECC ordered the payment of Rs 37.33 billion for clearing the remaining unpaid debts of utility companies or partner agencies of Pakistan Post after verification of the amount claimed by SBP.
The ECC also approved the release of Rs 621 million for payment of gas bills to SSGCL for supplying gas to Pakistani steel mills for eight months (July-February) at the rate of about Rs 80 per month. PSM is supplied with low flame gas of 2MMCFD by SSGC due to shutdown of production activity primarily to preserve coke oven batteries and refractory furnaces.
The ECC has also approved around 17 other additional grants worth Rs 146 billion, including 10 with an additional financial burden of around Rs 122 billion. This included about Rs 81 billion to Defense Services to bridge the critical shortfall in the current financial year and Rs 40.5 billion to exporters under the previous government’s Duty Drawback Schemes (DLTL and LTLD, etc.) cleared by the State Bank of Pakistan.
On the recommendation of the Ministry of National Food Security and Research, the ECC has also approved an increase of up to 2.67% in tobacco tax for the 2022-23 crop. Under the ruling, the tax on Virginia air-cured tobacco was Rs 6 per kg, showing an increase of 2.45 pc and 2.13 pc on the plain and sub-mountainous zone.
Posted in Dawn, June 4, 2022