Auto industry accused of misusing concessionary SROs
MUSHTAQ GHUMMAN
ISLAMABAD: National Tariff Commission (NTC) has reportedly revealed that auto industry is misusing concessionary SROs to import used auto parts, well informed sources in NTC told Business Recorder.
The sources said the Commission has conducted a study on abuse/ misuse of concessionary duty on raw material in which several loopholes exist.
According to sources, major beneficiary industries of waste and scrap are mild steel billets manufacturing industry (steel melters) and paper and paperboard manufacturing industry, as about 56 percent imports of total waste and scrap was of iron/steel and paper during 2014-15 which are used in these two industries. Other industries mainly using waste and scrap are plastic products manufacturing industry and sanitary fitting manufacturing industry. Mostly industries using waste and scrap as raw material/inputs are those industries producing import substitution products. The only industry involved in exporting some plastic products is plastic industry that also uses waste and scrap of plastics along with plastic granules.
Iron and steel billets are a semi-finished product of the domestic industry which are used to manufacture iron and steel bars, wire rods etc. The domestic industry manufacturing iron and steel billets consists of 18 units of which 4 are major producers i.e. (i) M/s Amerelli Steel Industries Ltd. is already producing Mild Steel Bars and has integrated its manufacturing facility backwards and set up its own melting unit for production of CC Billets and started producing iron and steel billets in 2010-11, (ii)M/s Agha Steel Industries set up its own integrated facility of manufacturing of CC billets, Mild Steel Bars and Wire Rods which started its commercial production during July 2012, (iii) ASG Metals Limited, who was already producing Mild Steel Bars integrated its manufacturing facility backwards and set up its own melting unit for production of CC Billets which came into commercial production during July 2013. Similarly Mughal Iron & Steel Industries Ltd, also expanded its capacity of manufacturing billets in 2014.
Pakistan’s total iron and steel billets market is approximately 800,000 MT per annum and the installed capacity of all the producers of billets in Pakistan is around 718,000 MT per annum.
Domestic industry manufacturing paper and paperboard consists of two large producers, i.e., M/s Century Paper & Board Mills Ltd., M/s Bulleh Shah Packaging (Pvt) Ltd. and more than one hundred other small producers of paper and paperboard. The total installed production capacity of paper and paperboard industry is 1,521,400MT per annum, out of which two large producers represent 511,400 MT per annum (around 34% of total capacity).
An analysis of the SRO 565(I)/2006 shows that most of the industries allowed to import inputs at concessionary rate of duty are also import substitution industries.
In order to provide “even playing field” to domestic industries in domestic market the government allowed import of raw materials / inputs including waste and scrap at concessionary rate of duty. The use of waste and scrap as raw material reduces the cost of inputs due to which the domestic industry becomes cost competitive vis-a-via imported equivalent.
Every ton of new steel made from waste and scrap of iron/steel saves 1,115kg of iron ore, 625 kg of coal and 53 kg of limestone. Similarly, recycling of one ton of newsprint saves about 1 ton of wood while recycling of 1 ton of printing and copier paper saves slightly more than two tons of wood. Besides this, the recycling of paper results into a 40% to 64% reduction in energy. According to the United States Environmental Protection Agency, recycling paper causes 35% less water pollution and 74% less air pollution.
The officers of the Commission held meetings with the following and discussed misuse of concessionary/lower rate of duty: (i) Amerelli Steel Industries Ltd., Karachi, (one of the top importer /user of iron & steel scrap); (ii) Century Paper & Board Mills Ltd, Karachi, (one of the top importer / user of waste paper); (iii) Director Customs Intelligence FBR, Islamabad; and (iv) Secretary Customs Budget FBR, Islamabad.
Views/comments of the stake-holders are as follows: (i) waste and scrap of paper as well as of iron/steel are the most important and major inputs for manufacturing of paper, paper board and steel billets;(ii) use of waste and scrap reduces the cost of inputs due to which the domestic industry is at a level-playing field vis-à-vis imported equivalent; (iii) there is no chance of misuse of bundled iron and steel scrap; (iv) use of waste and scrap in production process is not only energy efficient it is also environment friendly; and (v) waste and scrap under the heads ‘others’ which is normally not bundled can be misused, however, the duty on these headings is the maximum and the imports are subject to a strict scrutiny by the Customs authorities.
FBR argues that it is a widespread misconception that imports of scrap / inputs at concessionary rate of customs duty is misused in general. There are instances where these imports are misused; however, ratio of misuse is negligible.
1- There are three channels being operated for the clearance of imported goods/ containers, i.e., green, yellow and red channels. No inspection is required for green channel, yellow channel requires random checking (on discretion of the customs officer) whereas red channel requires mandatory checking.
2- Import of waste and scrap of iron /steel is treated as sensitive import and is cleared through red channel, which means all containers are grounded first to avoid mis-declaration.
Therefore, there is a negligible chance to import finished/usable products in the garb of scrap. However, if there is any complaint, the Customs takes immediate action in that case.
3- The government is committed to phasing out the concessionary regime of import. The number of industries allowed import of raw materials / inputs at concessionary rate of duty under SRO 565(I)/2006 has been reduced from about 157 industries to 25 industries in the budget for FY 2015-16.
The remaining concessions available to about 25 industries will be eliminated in the next year’s budget. Therefore, no question arises of misuse of raw materials/ inputs imported at concessionary rate of duty.
4- Old/used auto-parts are allowed to be imported at redemption of fine. The import of used auto parts is allowed to check smuggling of auto parts as these are smuggled through Afghan Transit Trade. Import of old/used auto parts is misused as usable parts are being imported at very low price. However, there is a mechanism agreed with importers and domestic producers for valuation of such parts.
5- The bundled steel scrap and waste papers are mostly imported by the domestic industry and there is a negligible chance of misuse of these types of scrap.
An analysis indicates that total imports of waste and scrap of iron/ steel and waste paper account for around 52% of total waste and scrap imported each year. The remaining 48% include import of plastic scrap, waste and scrap of copper etc. Imports of waste and scrap in terms of quantity increased by 33% in 2013-14 as compared to the previous year while in terms of assessed value the imports of waste and scrap in the same year increased by 19%. In the year 2014-15, the quantity of imports of waste and scrap increased by 12% while its value increased by 29%. Unit value of total waste and scrap reduced by 10% in 2013-14, while it increased by 15% in 2014-15.
The volume of import of waste paper increased on average by 3.4% during 2012- 13 to 2014-15 as compared to 2013-14, as the paper industry was using around 18% imported waste paper as raw material in their production of paper.
The volume of imports of waste and scrap of iron & steel increased on average by 26% during 2012-13 to 2014-15, as the use of imported waste and scrap of iron & steels increased from 50% in 2012-13 to 59% 2014-15 as raw material in the production of steel billets.
It is evident that imports of waste and scrap of iron & steel increased with the increased production of mild steel billets by the domestic industry.
