India shelves petrochemical import duty revamp on budget concerns

15 January 2013 08:36  [Source: ICIS news]

By Ajoy K Das

KOLKATA (ICIS)--India has decided to shelve a proposed rationalisation of its inverted import duty structure on chemicals and petrochemical products for now, fearing the measure would translate to lower government revenues, a senior official from the Ministry of Chemicals and Fertilizers said on Tuesday.

“The Ministry of Finance has indicated that [a] reduction in peak import duty of 10% has been ruled out since revenue collections were depressed on this account,” the official said.

“Without changing the peak import duty across product categories, it would not be possible to implement a progressively rising duty structure along the value chain from feedstock to finished products,” the official said.

In June 2012, the Ministry of Chemicals and Fertilizers sought the rationalisation, in which graduated duty rates would apply on feedstock and downstream petrochemical products.

Under the plan, feedstocks used in petrochemical production – such as naphtha and liquefied natural gas (LNG) – will get to enjoy zero duties, while a 2% duty will apply to intermediaries like ethylene, propylene and benzene. A higher rate of 5% would be in effect for polymers and bulk chemicals and a 12% rate would apply for specialty chemical, the official said.

India currently levies a 5% import duty on feedstock, intermediates and primary petrochemicals, while all other value added products are charged a 7.5% duty.

“Correcting the inverted duty regime would not be possible in a single year considering the vast number of product categories and [the] necessity of undertaking revenue impact assessment,” the official said.

India was initially planning to start the rationalisation process in the fiscal year 2013-2014, for completion in 2016-17.

Rationalising the duty rates at this point could further deter trade, especially now that the Indian rupee has lost 7% of its value against the US dollar over the past 10 months, making imports more expensive, the Ministry of Finance had stated in a correspondence with the Ministry of Chemicals and Fertilizers, the official said.

For the finance ministry, any attempt to hike rates on downstream products would adversely impact trade and ultimately lead to lower revenue collection for the government, the official said

“The petchem industry has a valid contention that India was a net exporter of naphtha, but at the same time, downstream units import the feedstock, paying import levies, making value addition un-competitive,” he added.

By: Ajoy K Das
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