India's proposed 15% 'covid tax' draws ire from chemical end-users

Author: Priya Jestin

2020/05/20

MUMBAI (ICIS)--India is proposing to impose a 15% tax on all chemical and petrochemical imports, to protect the domestic industry in the current fiscal year ending March 2021 as the south Asian nation battles the coronavirus pandemic.

Downstream end-users, however, have posed strong opposition to the measure dubbed as “covid (coronavirus disease) tax” - which was supposed to take effect for 11 months from May 2020 - as this will translate to higher cost of production.

The proposed provisional duty would be applicable on all imports under India’s free trade agreements (FTAs) and would also cover both organic and inorganic chemicals, plastics, rubbers, man-made filaments and staple fibres.

Industries in India are slowly clawing back to life as the nationwide lockdown of more than two months is due to end by June.

“The Department of Chemicals and Petrochemicals is still holding stakeholder consultations for this proposal,” said a government official.

The government had initially rolled out the plan to tax chemical and petrochemical imports in early April, but was not implemented given strong opposition from downstream industries and associations.

“Government representatives have promised us that they will maintain status quo on the tax hike,” said a member of the All India Plastic Manufacturers Association.

“Due to the current global crisis, consumer demand is going to be suppressed. However, lower price of polymer, and therefore, affordable plastics finished products could drive up the demand and hence, could help to retain nearly 5m jobs in plastics processing sector,” he added.

This would help improve demand and also create more jobs in the plastics processing sector, which is dominated by micro, small and medium enterprises (MSMEs).

“More than 50,000 MSME plastic processors in India have installed capacity to process 55m tonnes and have been operating at 50% capacity due to demand depression,” the AIPMA member said.

“If the recommendation to increase taxes on chemicals is accepted, thousands of MSME’s would close down leading to massive job losses and financial pain,” he added.

In a letter to the government on 15 April, the AIPMA complained against the imposition of additional import tax.

The Organisation of Plastics Processors of India (OPPI), the Indian Plastics Federation (IPF), the Plastic export promotion Council (Plexconcil) and the plastics manufacturers associations of the states of Gujarat, Kerala, Karnataka, Tamil Nadu, Maharashtra, Andhra and Telangana were all signatories to a series of AIPMA letters sent to various government agencies opposing the measure.

“[The] Government of India had promised one country one tax while launching the goods and services tax (GST) in 2017. Adding any new taxes when businesses are facing challenging time during current economic scenario may actually reduce the exchequer revenue,” the AIPMA had stated in the 15 April letter.

Domestic polymer producers manufacture only 53% of the polyvinyl chloride (PVC) demand in the country and 47% of country’s consumption is met through imports, it said.

Raising the import duty on such material would be counterproductive for the plastics processing industry.

Similarly, India does not make bio-based polymers, specific medical grade polymers, engineering plastics in primary form, certain grades of polyethylene (PE) & specialty grade polymers, it added.

In a separate letter to the Ministry of Chemicals and Fertilizers on 24 April, the Aluminium Association of India (AAI) had asked the government to drop the new import tax, citing it would be “detrimental to the sustainability of the already ailing sector”.

“Any increase in tariffs on chemicals might help one segment of domestic industry, but would be highly detrimental for various other key sectors of domestic industry like textiles, soap and detergent, pharmaceuticals, aluminium, drugs manufacturers, etc,” the AAI stated in the letter.

The ongoing lockdown which began on 25 March had forced MSMEs to stop operations. For the hard-hit MSME sector, the Indian government recently announced a $40bn collateral-free loan scheme to shore up the industry.

Meanwhile, India’s exports have taken a strong beating due to its nationwide lockdown to contain the coronavirus pandemic, which started late last year in China and has so far infected more than 4.7m people and killed more than 300,000 globally.

The south Asian country reported a 60.3% year-on-year plunge in April 2020 merchandise exports, with shipments of chemicals down 41.9% at $1.20bn and those of petroleum products slumping 66.2% to $1.24bn, official data showed.

Exports of man-made yarn/fabrics in April fell 84.1% to $61.76m, while those of plastics declined 25.4% to $478m.

Chemical imports during this period dipped 35% to $1.3bn, fertilizer imports dipped nearly 18% to $349m while crude petroleum and petroleum imports saw a nearly 60% fall to $4.7bn.

As of 19 May, India has 101,139 confirmed coronavirus cases with 3,163 deaths, according to data from the World Health Organisation (WHO).

Focus article by Priya Jestin

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