INDIAN CHEMICAL COUNCIL TAX PROPOSAL FOR UNION BUDGET TRU

Transcription

1 A. RESTRUCTURING BASIC CUSTOMS DUTY 1. Reduction in customs duty on feedstock methyl alcohol ( ) Methanol consumption in the country is estimated at million tones and is expected to reach 2.5 million tons by the end of the 12th five-year plan. The current production capacity in the country is million tones/annum, thereby creating a significant gap which is primarily met through imports from Middle East and China. Feedstock Methyl alcohol be reduced to 0% as this will promote growth of downstream chemical industry. On application side, the downstream products of methanol are Acetic Acid, Formaldehyde, Di Methyl Ether, Methyl Tertiary Butyl Ether, Gasoline etc. which are major basic building blocks for majority of chemicals in India. The removal in duty on methanol will surely boost the downstream industry and will reduce the outgo of foreign exchange from the country. There exists strong opportunity for investment in methanol capacity in the country, but these are limited by feedstock (naphtha and natural gas) availability. In such a scenario, the government can incentivize the development of downstream industry by removing custom duty on methanol 2. Restructuring import duty on Ethyl Alcohol ( ) While estimated molasses based ethanol production is around 250 crore liters, the total consumption is around 300 crore liters. The deficit is being met through large quantities of imports done by the chemical industry. Launch of Ethanol ethyl alcohol be reduced from 2.5% to to 0% 1

2 Blending Programme in the country has resulted in an upsurge in ethanol demand. Latest tender issued by PSU OMCs. For ethanol procurement has come up with a volume requirement of 266 crore liters with the aim to achieve 10% blending level. In , molasses based ethanol production is estimated to be lower compared to previous year because of the lower sugar production in the country which will further widen the deficit. This has further increased price of ethanol available to chemical industries. Due to the inadequate supplies of ethanol in the domestic market, Indian Chemical industry is forced to import ethanol. In the past five years, ethanol has been continuously imported and with the existing scenario, the chemical industry would be dependent on ethanol imports for its major requirement. Recently, many policies have been introduced in support of ethanol supplies going for blending like: o Fixing of ethanol delivered price at depots of Rs /lit o Removal of excise duty on ethanol supplies for blending in gasoline. On application side, the downstream applications of ethanol are fuel blending, potable liquor, Pyridine, Mono Ethyl Glycol (MEG- further used for Polyester Fiber and Films, Packaging Films and Pet bottles etc). Ethyl Alcohol is also used for making Acetic 2

3 Acid, Ethyl Acetate and Acetic Anhydride. Most of these products (Pyridine, Ethyl Acetate etc.) are exported out of country and are major building block for various agro chemicals and pharmaceuticals products. Removal of Duty will further boost the export of such products and will increase the forex revenue for the country. 3. Reduction of custom duty on acetic acid (HS ) from current 5% to NIL In view of the above, we request you to reduce Import duty for Industrial Ethanol to 0% in line (2.5% present duty) with duty on other competing feed stock to make ethanol based chemical industry competes with alternate petro route and in global market for its finished products. Acetic acid is an important organic chemical and critical building block/raw material for various downstream industrial chemicals like ethyl acetate, acetic anhydride, poly vinyl acetate etc. India is net exporter of these downstream products. Further, India is a net importer of acetic acid as current domestic capacity is not sufficient to meet the demand. Current domestic demand of acetic acid is around 8.0 lakh ton p.a. while the production is only 1.5 lakh ton p.a. In order to benefit the domestic manufacturers and help them to be competitive in global market in downstream products, it is requested to reduce the custom duty on acetic acid from current 5% to NIL. There is only one producer of acetic acid and no new capacity is planned in the near future, thus 3

4 4. Raising customs duty on poly vinyl chloride (390410,390421,390422) compelling the downstream producers to depend on imports and same is expected to continue in near future. Indian import duty on PVC, at 7.5%, is still far lower than that prevailing in comparable economies. This is resulting in very poor margins for domestic manufacturers, leading to a complete disinterest in capacity additions. For instance, the last Greenfield PVC plant was set up in 2009 and in the last 6 years, there has been no other significant investment in creating capacities. Thus, India is even today excessively reliant on imports to meet its PVC demand, with demand expected to exceed 3 mnmt in the current financial year, while capacity is virtually stagnant at 1.4 mnmt. The gap is likely to widen more and more in future years as demand is growing at a CAGR of 10% while no capacity additions are on the anvil. At this rate, domestic downstream processors will find it difficult to secure PVC resin supplies even from international sources in about another 5 years. It is thus imperative for India to add to domestic PVC manufacturing capacity to nurture growth in the downstream sector. To redress this situation, it is requested that duty on PVC be raised to 10% from the present level of 7.5%. Articles of plastics also attract only 10% as Basic Customs Duty but it may be pointed out here that several countries do not have any differential 4

5 5. Reduction of customs duty on key intermediates ethylene dichloride (EDC) (HS ) & vinyl chloride monomer (VCM) (HS ) between the basic polymer and articles made out of these for the later have an inherent protection in terms of logistical issues in imports. As such, a duty revision on PVC resin has very miniscule impact on end product prices and do not have any impact on their growth. This is also borne out by the fact that products made of PVC were unaffected when duty on PVC was raised from 5% to 7.5% in 2013, and, have, in fact, shown very healthy CAGR of around 7% even post this duty increase. This move will result in a positive revenue impact of around Rs. 220 crores. There is no local manufacture of these products for merchant sale in the Indian market; hence no Indian manufacturer will be affected by bringing down customs duty to nil. Facilities to manufacture these intermediates are usually set up only for captive use. This proposal will therefore not impact setting up of such facilities EDC & VCM be brought down from 2% to 0% In countries with developed petrochemical infrastructure, these are sourced off pipeline; in India, VCM is shipped under highly specialized conditions involving huge logistics cost, making 5

6 6. Reduction of customs duty on Ortho- Xylene ( ) domestic manufacturers uncompetitive compared to their international counterparts. For a few years until the petrochemical infrastructure is set up, and made available, it is requested that the duty be waived for these products. The revenue impact is reasonably small at around Rs. 55 crores, which is more than made up by the increased revenue that can accrue from an increase in Basic Customs Duty (BCD) on PVC resin. Ortho-xylene is a key feedstock used in the manufacture of Phthalic Anhydride. This duty reduction will aid in the Indian PA industry consuming more Ortho Xylene produced in India which is otherwise exported at lower realizations. The sole supplier of OX (raw material of PA), exports over 220,000 tons/annum to the Far East, and a good portion of this are re-imported from the Far East as finished product PA. Thus, current duty structure creates employment, investment & value addition in the Far East, and not in India. It is requested that basic customs duty on Ortho Xylene be brought down from 2.5% to 0% This gross anomaly, which supports foreign manufacturers at the expense of the domestic industry for the Indian market, needs immediate correction. 6

7 7. Raising customs duty on Phthalic Anhydride ( ) Over the last 5 years, due to inverted duties and very low Basic import duties, there has been a strong incentive to flood the Indian market with products from overseas. This has led to serious damage to the vibrant and critical domestic Industry. Imports of Phthalic Anhydride into India have grown by more than 400%. Indian Import duty on Phthalic Anhydride is far lower than those in other countries. In addition, due to the Trade agreements with Korea, Japan and ASEAN countries, there is an effective ZERO differential duty on raw material Ortho-xylene (OX) and final product, Phthalic Anhydride (PA), and negative value addition from OX to PA, while other countries like the EU, Korea, US have a healthy 20-30% value addition Phthalic Anhydride be raised to 10% from the present level of 7.5% India has world class manufacturing plants, with capacity of 300,000 MT per annum, which had been exporting over 80,000 tonnes/year to Europe, Middle East and the Far East over 4 years ago. Currently, most of this capacity is lying idle. As Petrochemical plants need to operate at over 90% capacity to be viable, international producers, in view of lack of demand in their own countries, sell excessively in India at a distress price. 7

8 Even the requested duty correction will give the Indian industry a value addition of only 12.5% as against 20-30% value addition in all other countries. 8. Restructuring import duty on Styrene Monomer (HS ) Styrene Monomer which is a critical raw material for the Synthetic Rubber industry has no manufacturer in India. The entire Styrene Monomer requirement is imported from countries like Saudi, Kuwait, etc. where 2.5% import duty is levied. Styrene Monomer be reduced to 0%. 9. Restructuring import duty on Butadiene Butadiene is another critical raw material for the Synthetic Rubber industry where 2.5% import duty is currently being levied. There is effectively only 1 supplier of Butadiene in India (IOCL) and since pricing is being done on the basis of imported Butadiene including freight (which is very high), the cost of Butadiene is highly uncompetitive in India compared to most other countries. There are two other manufacturers of Butadiene in India (Reliance Industries Ltd. and Haldia Petrochemicals Ltd.) but they do not supply anymore to the Indian Butadiene consumers. Butadiene be reduced to 0%. 10. Restructuring import duty on Acrylamide and Polyacrylamides Kurkumbh plant of dry granular Polyacrylamides belonging to Dai-Ichi Karkaria Ltd was the only plant in India which produced International quality products in continuous process. Polyacrylamides are required by all industries for waste water acrylamide be reduced from 7.5% to nil Polyacrylamides be increased from 7.5% 8

9 treatment. The expansion plan of the company never worked because of the large scale imports of Polyacrylamide to India. to 10%. 11. Restructuring Duty on PTA (HS ) and MEG (HS code: ) In fact this situation has worsened due to availability of Polyacrylamide in India at cheaper prices than manufactured in India. India consumes around 5,000 MT/yr of the product excluding consumption in the petroleum industry. About 8,000 MT/Yr of Polyacrylamide is imported every year, with a large quantum being dumped into India from China. Acrylamide and acrylic acid which are the raw materials for the manufacture of Polyacrylamide are at present imported items. Both acrylamide as well as Polyacrylamide attract the same duty of 7.5% India has got a few powder grade polyacrylamide manufacturers. But the total installed capacity is not more than 2,000 MT/Yr. All the Indian Polyacrylamide manufacturers are in a serious problem/ threat from imported polyacrylamides. Polyester is the key pillar of India's robust synthetic fiber industry. Indian manufacturers have made substantial investments in creating domestic capacities of fiber intermediates like PTA and MEG. It is requested that duty on PTA (HS ) and MEG (HS ) be raised from existing level of 5% to 7.5%. This will not only help rationalize the 9

10 12. Restructuring duties on imports of Caustic Soda (281511) and Soda Ash ( ) from 7.5% to 10% However massive Chinese surplus capacity of PTA and MEG pose a serious threat to these investments today. Caustic soda and soda ash are basic building blocks in which the domestic industry has adequate capacities to meet domestic demand in full. tariff structure for the polyester sector but will also improve the duty spread between these products and their feed stocks Naphtha, thereby supporting domestic manufacturing. Caustic Soda & Soda ash be increased from 7.5% to 10%. The Indian industry has invested substantially in upgrading to the latest and most energy efficient membrane cell technology for producing caustic soda. India in second only to Japan in achieving this distinction. Despite this achievement, the industry continues to be at a disadvantage as high cost of power adds to overall manufacturing costs. This will partially offset the disabilities the Indian industry suffers. 13. Restructure customs duty on Poly Ethylene Terephthalate (PET) ( ) by raising from 5% to India offers a huge market which will continue to grow with expectations of a healthy GDP growth in the coming years. This market potential coupled with the high domestic manufacturing costs gives an unfair advantage to countries with low power costs and having surplus unutilized capacities. The absence of a level playing field to the domestic industry provides ready access to countries like China, Korea, Taiwan, Middle East, etc. who are able to easily service the Indian market. While most of the major plastic raw materials attract duty of 7.5%, duty on Poly Ethylene Terephthalate (PET) continues to be 5%. Purified Poly Ethylene Terephthalate (PET) be raised from 5% to 10 %. 10

11 10%) Terephthalic Acid (PTA) (HS ) is a major raw material for PET. PET currently attracts import duty of 5% and we have requested for this to be enhanced to 7.5% As such, import duty of PET should be raised to 10%. PET industry operates at a very low margin and the sudden influx of low cost imports at unreasonable prices over the last few years has been a serious threat. PET domestic capacity is around 1.8 million MTA, whereas consumption is around 0.80 million MTA. The surplus 1.0 million MTA is exported to more than 50 countries depending on the operational capacity of the producers. PET manufacturers have made significant investments towards creating large production capacity and ensuring adequate availability of the material in the country. This has played a vital role in fuelling the growth of the retail sector in our country. Import duty on key commodity plastics like Polyethylene, Polypropylene, Poly Vinyl Chloride and Polystyrene was increased in May 2014 from 11

12 5% to 7.5 %. It is unfair that PET continues to remain at 5%. 14. Clarification of Custom Duty of 2- Ethyl Anthraquinone (HS ) PET industry in India is facing significant import competition in view of low customs duty protection granted to this industry. 2-Ethyl Anthraquinone is the prime raw material for manufacturing of Hydrogen Peroxide. ICC, in its Pre-Budget Memorandum had recommended correction for Inverted Duty with respect to manufacture of Hydrogen Peroxide. Accordingly, in the last budget, the Government has reduced the basic custom duty on Anthraquinone from 7.5% to 2.5%. Notification No. 12/2012- Customs, dated 17th March, 2012 as amended by notification No. 10/2015-Customs, dated the 1st March, 2015 [new S.Nos. 181A] was issued in this behalf. In the past, both 2-Ethyl Anthraquinone and Anthraquinone were cleared by the customs under HS code with the Basic Custom Duty of 7.5%. However, when a recent consignment of 2- Ethyl Anthraquinone was being cleared, the custom authority have mentioned that 2-Ethyl Anthraquinone falls under category Others under Quinones with HS Code of and the new Basic Custom Duty of 2.5% for Anthraquinone is not applicable for 2-Ethyl Anthraquinone. It is requested that necessary advice be given to customs authority that the customs duty on Anthraquinone ( ) and other derivatives i.e., (1, 4-Dihydroxy Anthraquinone), (Methyl Anthraquinone) and (other) will stand reduced to 2.5%. Alternatively, the basic customs duty specifically on HS Code under which 2-Ethyl Anthraquinone falls which is used for manufacturing Hydrogen Peroxide be reduced to 2.5%. 12

13 Sr. No. Product INDIAN CHEMICAL COUNCIL - PROPOSAL FOR UNION BUDGET : Revenue Implications HS Code Imports (kt) Imports (Rs. Lakhs) CIF Price (Rs/MT) Import Duty Existing Proposed Revenue Impact (Rs. Crs) 1 Methyl Alcohol ,640 1, , ,259 19,448 16,672 5% 0% Ethyl Alcohol ,506 KL 231,529 KL 59,711 95,663 52,147 41, % 0% Acetic Acid , ,305 32,980 26,049 5% 0% PVC , & ,293 1, , ,823 66,084 58, % 10% EDC , ,976 25,167 17,496 2% 0% -21 5a VCM , ,592 56,225 47,797 2% 0% Ortho-Xylene ,006 30,522 67,738 49, % 0% -8 7 Phthalic Anhydride ,815 43,580 75,791 54, % 10% 11 8 Styrene Monomer , ,539 87,977 71,941 2% 0% Butadiene ,649 77, ,545 85, % 0% Acrylamide 7.5% 0% 0 10a Polyacrylamides , , , , % 10% MEG ,004 1, , ,689 54,817 48,533 5% 7.5% a PTA , , ,046 53,510 45,631 5% 7.5% Caustic Soda , ,600 22,218 23, % 10% 33 12a Soda Ash ,800 98,800 15,513 16, % 10% ,755 4,551 67,929 56,888 5% 10% 2 13 PET , ,700 5% 10% ,084 70,280 74,104 61,649 5% 10% Ethyl Anthra-quinone (2EAQ) , , % 0% a Fresh Catalyst (2% palladium content) ,500,000 33,333, % 0% Total