Ministry wants basic changes in petrochem duties

No incentive for local polymer manufacturers to set up refineries as demand could be easily met through imports

The department of petrochemicals under the Union ministry of chemicals and fertilisers has recommended to the government and the Planning Commission a reversal of the inverted duty structure in the sector.

According to department officials, processed goods can be imported at a cheaper rate due to a lower duty compared to the primary feedstock or raw material to manufacture these, which carry a higher duty. Thus, there is no incentive for local polymer manufacturers to set up refineries to manufacture polymer when the demand could be easily met through imports, said officials.

The recommendation is for zero per cent duty on feedstock (naphtha and liquefied natural gas), two per cent on intermediates (ethylene, propylene and benzene), five per cent on primary petrochemicals (polymers and bulk chemicals) and 10 per cent on various semi-specialty or value-added products. For capital goods used by the industry, the proposal is for duty elimination, from 10 per cent now.

 

The department says the duty structure is the main reason for the laggard growth of the petrochemicals zone in various states. This feedback is a follow-up to a query of the ministry and the Cabinet on the slow growth of the Petroleum, Chemcials and Petrochemicals Investment Regions (PCPIRs). This was part of a general review from the Cabinet on infrastructure projects.

PCPIRs are the flagship scheme of the petrochemicals department. These regions were proposed for various states but, except for Gujarat, are yet to be commissioned fully. PCPIRs were proposed mainly to manufacture polymers for downstream applications in the plastic industry.

Most petroleum refineries have postponed investment commitments to the PCPIR zones. The department has also told the government that the public sector refineries should be told to fulfill these.

Based on the department’s recommendations, the Planning Comm-ission has also urged the central government to establish a single value-added tax/goods and services tax on plastics and related articles at four per cent, in the 2012-17 plan period.

Currently, along with feedstock, intermediates and primary petrochemicals are charged at five per cent, while various semi-specialty or value-added products are charged 7.5 per cent. India’s import duty structure provides zero tariff protection for naphtha, natural gas and propane, besides ethylene, propylene, benzene and butadiene. With a preferential duty structure for that and having signed free trade agreements with India, the tariff protection is even negative here. On the other hand, other countries maintain a tariff differential of at least 5.5 per cent.