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35 percent ghee units closed due to heavy taxation

KARACHI (February 15 2003) : Of total 89 vegetable ghee and cooking oil units working in the organised sector, 35 percent have pulled down their shutters and the remaining are fighting for their existence.

The reason of the pathetic condition of this industry as given by Pakistan Vanaspati Manufacturers Association is the unbearable taxation structure imposed by the government.

The production capacity of all these units is 2.7 million tonnes and the country's requirement is 1.7 million tonnes per annum.

The present local production of edible oil is 0.582 million tonnes and the remaining requirement of edible oil is 1.419 million tonnes which is met through imports.

The vegetable ghee/cooking oil industry in Pakistan contributes Rs 29 billion annually to the government exchequer through direct and indirect taxes.

However, in spite of being the second largest contributor to the government exchequer after POL, the vegetable ghee/cooking oil industry at present is facing multiple problems/irritants.

The present heavy tariff/taxes on the vegetable ghee/cooking oil industry anomaly within the vegetable ghee/cooking oil units and other irritants present within the vegetable ghee/cooking oil industry and other industries are directly or indirectly related to this sector.

The vegetable ghee/cooking oil units at present are paying Rs 20,000 per tonne, or Rs 20 per kg, in the form of custom duty, sales tax and withholding tax at the import stage on edible oil. In addition, these units are also required to pay 15 percent GST.

As a result of these multiple duties/taxes, many of the vegetable ghee/cooking oil units with weak financial liquidity position have already closed down and the remaining units are likely to reach the verge of closure shortly.

In the past, it had been the practice that whenever the prices of imported edible oils rose substantially in the international market the custom duty was immediately reduced proportionately so as to avoid further burden on the general public.

But this time, the government is reluctant to do the same in spite of the fact that the prices of edible oil have gone from $ 235 in July, 2001, to $ 490 per tonne in December, 2002.

“We, therefore, request that the custom duty may be reduced in proportion to the rise in the international market and simultaneously the sales tax on imported edible oils may also be reduced from 20 percent to 15 percent which was unnecessarily enhanced to 20 percent in the current budget for the year 2002-03.

Moreover, the GST levied at the manufacturing stage on vegetable ghee/cooking oil may also be withdrawn as the same has been done in case of various essential commodities/ products,” industry sources said.

The vegetable ghee/cooking oil units are paying 20 percent sales tax on imported edible oils besides 15 percent GST.

On the other hand, the solvent extraction units producing edible oil from imported commercial oilseeds are exempted from payment of sales tax and GST.

As a result, many of the solvent extraction units, taking advantage of this exemption, sell their oil as washed oil without payment of sales tax/GST.

Moreover, this oil is generally sold by the solvent extraction plants to the unregistered units, which sell the same without paying sales tax and GST.

This situation is not only depriving the government of huge revenue, say Rs 1.930 billion, annually on the basis of the edible oil produced from imported commercial oilseeds but also has badly affected the competitive position of the vegetable ghee/cooking oil units challenging their survival.

Hence, 20 percent sales tax may be levied on edible oil produced from imported commercial oilseeds so as to provide level playing field to all the stakeholders ie vegetable ghee/cooking oil units, solvent extraction units and the farmers, they said.

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