The government has decided to impose 10% regulatory duty on the import of petrol from China aimed at plugging a loophole that is exploited by the oil marketing companies to avoid taxes, which has caused over Rs40 billion losses in just a few months.
The Federal Board of Revenue (FBR) has prepared a summary for the approval of cabinet to impose regulatory duty at the rate of 10% on the import of petrol from China, sources told The Express Tribune.
The Collectorate of Customs Enforcement, Karachi had unearthed the misuse of China-Pakistan Free Trade Agreement a few months ago.
The import of petrol is subject to 10% customs duty but no levy is collected if petrol is imported from China under the free trade agreement (FTA).
In the budget, the government had doubled the customs duty on import of petrol from 5% to 10%, which also significantly increased prices of the important fuel.
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The share of petrol import from China in total import of the fuel has increased from 11% to 40% due to the duty-free status and routing of imports from other destinations through the Chinese ports, said the sources.
The government has already taken a hit of Rs40 billon on its revenues during the current fiscal year due to the duty-free import from China. On the current import value, the monthly losses due to the misuse of FTA have increased to Rs22 billion, said a senior FBR officer.
Petroleum imports were made part of the revised FTA in 2019 despite the fact that China was a net importer of oil and these products were not in the original FTA signed in 2006.
According to the Rules of Origin, agreed under the bilateral FTA, the trade conversion for product not wholly produced should have at least 40% of its content originating from the same party, according to a special formula specified in the rules.
However, the petrol being imported from China has less than 40% value addition, therefore, it does not qualify for the duty-free import status.
The fuel is being imported through the Chinese ports of Dalian and Zhoushan, said the officials.
The FBR raised over Rs287 billion in indirect taxes from petroleum products in the first seven months of current fiscal year, up 72% or Rs120 billion.
In July-January FY22, the FBR collected Rs70 billion in taxes on the import of petrol on account of customs duty and sales tax. It was higher by nearly one-third, or Rs17 billion.
Customs duty collection on petrol import stood at Rs36 billion in seven months, which was higher by nearly 290%, thanks to the government’s decision to double the customs duty rate to 10% in July last year.
Prime Minister Imran Khan has paused the proposed increase in petroleum product prices with effect from March till June this year.
Sources said that after finding the misuse of the Chinese trade facility, the Customs department had stopped fuel shipments and released them only after taking securities from the oil marketing companies.
All the oil marketing companies are not availing the FTA, which has resulted in a situation where some are paying 10% customs duty while others are not.
According to a report in an English daily newspaper, the oil marketing companies have recently reported to the Ministry of Energy that they had imported about 2.4 billion litres of petrol from China between January 1, 2020 and January 1, 2022.
Pakistan State Oil took benefit of petrol imports from China. It imported about 68 million litres from China and claimed customs duty waiver against the FTA certificate.
The biggest beneficiary of the facility was Shell Pakistan, which imported about 1.2 billion litres of petrol and claimed customs duty waiver, according to the reports.
The second biggest beneficiary was Gas and Oil Pakistan, which imported more than 474 million litres of petrol from China.
Total-Parco imported about 288 million litres in two years with no payment of customs duty, according to the report.
Published in The Express Tribune, March 11th, 2022.
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