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1- FEDERAL BUDGET: AN ANALYSIS  
2-
IMPROVING PROJECT IMPLEMENTATION
3-
DUTY REDUCTION & TEA SMUGGLING
4-
THE PRIVATIZATION AGENDA

 

DUTY REDUCTION AND TEA SMUGGLING

 

The bulk of quantity finding its way into the country illegally

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By SYED M. ASLAM
July 07 - 13 , 2003 

 

 

 

The 'goodwill' visit of the Indian Tea Association and the signing of a memorandum of understanding with its Pakistani counterpart to export a minimum 10 million kilogram of tea, subject to 'quality and price', during the current fiscal, is aimed at giving India a deeper penetration of the local market. On the other hand, the local tea blenders expect to substitute the costly Kenyan tea with comparatively lower priced Indian product to enhance their profitability. While businesses on both the sides expect to derive mutual benefits from the deal what remains to be seen is that would the arrangement benefit the consumers and discourage massive smuggling to help improve governmental revenue?

While one can easily understand the interest of the Indian tea producers in Pakistan, a tea-guzzling nation with a per capita tea consumption of around one kilogram making it the world's top third tea importer, it is also imperative to ensure that the interests of the consumers are also protected. The benefits of significant reduction in shipment costs and the competitive prices of tea imports from India should be passed off to the consumers.

Before putting up the case for consumers, let us first highlight the intricacies of the tea market in Pakistan and why the Indian imports should offer price relief to the consumers. The annual tea consumption in Pakistan stands around 140 million kilogram of which about 102 million kilogram is imported into the country legally while the remaining 38 million kilogram finds its way on the retail shelves illegally. Of the 102 million kilogram legal imports, around 70 million kilogram is branded while the remaining is sold in loose form. Multinational Unilever enjoys the biggest share of the branded market followed by national Tapal Tea and the two companies collectively sharing around 85 per cent of the branded market. A number of smaller companies collectively share the remaining 15 per cent of the branded market.

 

 

On the other hand, around 38 million kilogram of the product smuggled into the country, is primarily sold in loose form, along with imported counterparts, thus making it easy for the unscrupulous elements to push their products across thousands of retail shops across the country.

Talking to PAGE, the former chairman of Pakistan Tea Association Hanif Janoo said though Indian tea is already being imported into the country it is a 'weak tea' grown in the southern part of India. However, he added, the ITA delegation which signed the MoU with Pakistan Tea Association comprised producers mainly representing the northern tea plantations, Assam being the most notable, which produce strong tea suitable for Pakistani taste.

He said that at present Kenya is the top tea supplier to Pakistan contributing around 65 per cent of all legal imports, as well as the bulk of quantity finding its way into the country illegally. Indonesia, with 8 per cent share, is the second top exporter while India's share is around 3 per cent while the rest of the demand is met by a number of countries in Asia and Africa, he added.

He said that the MoU is not a business deal and the PTA members are not bound to import tea from India unless it is competitive in quality and price. "The rates need working as the landed cost of stronger tea from Northern areas of Indian works about Rs 85-86 per kilogram (around 1.5) which is much higher than imports from other sources in the region and only slightly lower than that of Kenyan product which has acquired the benchmark status for taste in the Pakistani market. Unlike other countries, the proximity between India and Pakistan, and the substantial savings thus offered in shipment costs, should reflect in prices.

"The average landed cost of Kenyan tea works out around $ 1.80 per kilogram C&F Karachi while that from Sri Lanka is around $ 1.30 per kilogram. The average landed cost of 'weak' Indian tea from the South is a low $ 0.90 per kilogram C&F Karachi. In addition, tea imports from Sri Lanka, despite being comparatively lower priced, is not even workable due primarily to its inferior quality. While tea grown in the Northern areas of India is capable of satiating the local taste buds, another problem is the availability of stocks as India itself has a huge tea demand."

The general manager finance and corporate services of Tapal Tea, Y.H. Thara, said that the local blenders expect to import tea from India provided it is price competitive and meets the taste, aroma and colour tests.

Kenyan tea not only finding its way into the country in large quantities legally but it is also being smuggled into the country in huge quantities. The bulk of the 38 million kilograms of tea smuggled into the country is from Kenya. Both Hanif Janoo and Y.H. Thara blamed high import tariff for the smuggling which has increased over the years.

Does the 5 per cent reduction in duty on tea imports to 20 per cent in the latest Budget discourage the menace. Both Hanif Janoo and Y.H. Thara said it would not as the reduction still allows the unscrupulous elements to enjoy a menaingful edge over the legal importers. "The duty should had been reduced by 15 per cent to 10 per cent to help discourage smuggling, if not fully than at least partially", Hanif Janoo said. "It would have no great impact on smuggling because the 15 per cent GST at the import stage has a heavy impact to inflate the landed costs allowing smugglers to enjoy a clear edge against imports. If the GST was reduced it may had a positive impact", added Y.H. Thara.In principal, tea imports from India should be comparatively cheap and to discourage smuggling on the one hand and providing savings to the consumes on the other.