FocusIndustry eyes India import duties status quo

28 February 2008 12:03  [Source: ICIS news]

By Divya Chowdhury

MUMBAI (ICIS news)--The Indian Chemical Council’s principal recommendation to Finance Minister Palaniappan Chidambaram for the upcoming union budget is to keep the status quo on import tariffs for most chemicals, the ICC said on Thursday.

"Basic duties on most chemicals are down to 7.5%, the ASEAN [Association of South-East Asian Nations] level that the government had promised to peg it to," it added.

Since the last budget, when the duty was lowered to this level, the Indian rupee has strengthened significantly versus the US dollar and served to make imports at least 10% cheaper.

ICC is concerned that a further reduction in import duties will hurt domestic producers, especially as manufacturing costs have risen significantly over the last year as well.

Another ICC demand is to cut import duties on feedstocks such as benzene, toluene, xylene, ethyl alcohol, ethylene and propylene from 5% to 1%.

The government should also consider slashing import duties on industrial fuels like furnace oil, low sulphur heavy stock (LSHS), naphtha, high speed diesel (HSD) and liquified natural gas (LNG) from 10% to 1%, a move that would help cap domestic prices as they are linked to import parity levels, ICC said.

The council also recommended reducing basic customs duty on spare parts and components of membrane cell plants in the chlor alkali industry from 10% to 5%.

The government must also fix inverted duty structures for products where the raw material attracts a higher import tariff than the finished goods, it said.

While the basic import duty for propylene trimer, tetramer and diisobutylene is 10%, their alkylated phenols derivatives attract a 7.5% duty.

The ethanol industry, supported by the ICC, has urged the government to correct tax anomalies on molasses and industrial alcohol.

The excise duty on molasses is Indian rupees (Rs) 750/tonne ($19/tonne), or around 30%-35% ad valorem, versus 16% on industrial alcohol, an ethanol producer said. The central excise duty on molasses should be cut to 16% or a flat rate of Rs300/tonne.

Industrial alcohol should be treated as ‘declared goods’ to ensure uniform taxation across the country, not exceeding 4%, to ensure a level-playing field for refineries, which will be procuring large quantities to meet the government’s ethanol blending mandate, ICC said.

"The plastics industry wants an excise duty reduction on polymers and processed goods from 16% currently to 8%," said Deepak Lawale, secretary-general of the Organisation of Plastics Processors of India.

"The government must also protect the domestic industry from the onslaught of foreign goods, particularly from China, and provide a level-playing field to Indian manufacturers," said Amar Seth, vice-president, Plastindia Foundation.

Reducing power tariffs and borrowing costs would help the local players, he added.

Meanwhile, the fertilizer sector is hoping that the finance minister will provide adequate budgetary allocations to meet its burgeoning subsidy bill and companies’ growing cash crunch.

The fertiliser sector would require around Rs500bn of funds for the current year, including the backlog for the previous year, said the Fertiliser Association of India.

"Adequate subsidy provisions have to be made for the fertilizer sector as we are already facing the liquidity crunch, otherwise it is difficult for companies to survive," said IFFCO managing director US Awasthi.

"The allocation of funds for 2008-2009 should also be made based on realistic assessment of requirement keeping in view the planned production and imports of finished fertilisers, the prices of domestic and imported inputs like raw materials," FAI added.

Currently, the fertiliser supply-demand gap in the country is estimated at 10m tonnes, which is likely to cross 16m tonnes by 2011-2012 on increasing demand and stagnation in domestic capacity and production, FAI said.

No major investments have taken place in urea since 1999 and from 2002 in diammonium phosphate (DAP) on the back of adverse changes made in pricing parameters since the second half of the 1990s, it added.

The association has urged the government to adopt policies such as import parity price (IPP) to promote the industry.

Other fiscal incentives to help attract fresh investments demanded by FAI included withdrawal of customs duty, service tax and a 15-year tax holiday for all new projects, exemption for fertilisers and inputs from state level value added tax (VAT), the reintroduction of investment allowance and an increase in the rate of depreciation from 15% to 25%.

The government should also withdraw its basic 16% excise duty on fuel oil and LSHS used for non-feed purposes and phospho gypsum, and also exempt sulphur and packing materials, FAI said.

It should also consider withdrawing basic customs duties on LNG, ammonia, phosphoric acid, rock phosphate and sulphur, which currently attract levies of 5%, and imported sulphuric acid, which is charged at 7.5%, it added.

All water soluble fertilisers should be allowed a concessional duty of 5%, while the service tax should be withdrawn, it said.

Major inputs like natural gas, regasified LNG (R-LNG), naphtha, fuel oil, LSHS, ammonia, phosphoric acid should be exempted from VAT. "If full exemption is not possible, these goods should be categorised as declared goods," FAI said.

Meanwhile, the Biodiesel Association of India wants the government to allow non-edible and industrial oil imports to produce biodiesel.

The government should promote alternative fuel production, and the duty on imports of non-edible oils would need to be similar to crude oil, it said.

India's petrochemicals and chemicals industry was demanding the central government to reduce excise and import duties on building block raw materials, furnace oil and synthetic fibres, industry bodies had earlier told ICIS news.

Chidambaram will present what could be the ruling government’s last fiscal budget on 29 February, as the country’s general elections are due in 2009.

($1 = Rs39.68)

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By: Divya Chowdhury
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