News Code : 44319

Petrotahlil - India is considering imposing a 15pc "Covid-19" tax on some petrochemical imports to help protect its domestic industry, which has been hit by a huge slump in demand from a nationwide lockdown to combat the coronavirus.

A government sub-committee under the chemicals ministry is proposing the new tax, which would be in place from 1 May this year to 31 March 2021.

The move is an effort "to protect the domestic producers against any surge in imports caused by the pandemic", said government-linked industry group the Basic Chemicals, Cosmetics & Dyes Export Promotion Council (Chemexcil), which is requesting feedback on the plan.

Rising global exports, the collapse in oil prices and a sharp slowdown in India's economy because of the Covid-19 outbreak are threatening the domestic chemical industry, the sub-committee said. "The current situation presents a real threat of an extended period of price depression on account of aggressive exports from China and other countries, which will force several producers to suspend operations and ultimately close down," it said.

The 15pc tax, which requires government approval, would be applied on top of existing import duties. The committee is also recommending refunding all duties and taxes on exports.

The recommendation covers all chemicals and petrochemicals imported by India. But a supplementary letter said there could be exemptions for ethylene, paraxylene (PX), ethylene dichloride (EDC) and vinyl chloride monomer (VCM).

India is a key importer of a range of chemicals including polymers, toluene, styrene monomer (SM) and methanol. The new tax, if implemented, would affect importers and distributors in the domestic market.

"The importers would not have a choice but to pass on the additional 15pc duty on imports to end-users," said an official at a major chemical importer. Downstream industries are already suffering losses, the official said.

It is unclear if SM is included in the list of affected products. India relies wholly on imports of SM to run its derivative polystyrene, expandable polystyrene, acrylonitrile butadiene styrene, unsaturated polyester resin and styrene butadiene rubber plants. These are used to make plastics and synthetic rubbers for light packaging used in sectors including food delivery and e-commerce, as well as consumer products, electrical appliances and the motor and construction industries.

India's SM imports rose by 25pc to 852,000t last year from 679,000t to support its growing demand. The imposition of a hefty import tax could damage derivative sectors. SM buyers in India are already struggling with swollen inventories purchased at previously higher costs, while their plants have been shut since the lockdown was imposed on 25 March.

India is a net importer of polyester feedstock purified terephthalic acid (PTA) and mono-ethylene glycol (MEG). MEG will probably be subject to the imports, one industry participants said, after Delhi started an anti-dumping duty (ADD) investigation on MEG in December to protect its domestic market. But major Middle East manufacturers indicated they have not yet received any official notice of the proposed tax from India.

Major Chinese and Taiwanese PTA producers do not expect to be affected by the tax, noting that India only just revoked ADDs on PTA in February to support the domestic polyester industry.

Traders in other chemical markets such as toluene and methanol were also unsure on whether they would be affected. Demand from the downstream solvents, formaldehyde and pharmaceutical sectors has fallen sharply since the lockdown was imposed.

India imported about 2mn t of methanol in 2019, making it one of the largest regional buyers. Imports of toluene were 437,241t, with Thailand the single-biggest supplier.

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