Indian exporters are set to lose as Bangladeshi government has withdrawn SAFTA benefits in the recent national budget, announced on 1st June 2017.
This move will impact exports of Ingot, Sponge Iron & Pig Iron from India as it will not have any advantage over other countries. Bangladesh is the largest exporting destination for Indian Sponge Iron and Ingots, which accounts for 40-50% of total exports from India.
Earlier, imports of Ingots, Sponge Iron and Pig iron from India, did not attract any duty under SAFTA agreement. Which will now be charged at 20%, 5% and 5% respectively from June 1st 2017. (For more pls refer below table).
Before this budget, Bangladesh government used to charge a specific duty of 1,000 Taka (USD 13) on imports of sponge iron. This duty has now been replaced with Regulatory Duty (RD), which will be levied at the rate of 5% on CIF value and 15% VAT. Regulatory duty is not eligible for claiming SAFTA benefits.
For instance, if market price of sponge iron is USD 280/MT CFR Chittagong, Bangladesh based smelter has to pay a USD 14/MT regulatory duty and 15% VAT (which is refundable at the time of sales of finished goods). Earlier it used to be zero.
Market participants believe that demand for Indian sponge will come down as buyers will prefer scrap.
Billets will be preferred over Ingots
It is also anticipated that Bangladesh based re-rollers will prefer Billet over Ingot due to change in duty structure. Unlike ingots, billets attracted a regulatory duty of 20% at a tariff value to USD 400/MT and 15% VAT before budget, which has been kept unchanged. Whereas specific duty of 7,000 Taka (USD 87) on ingots has been replaced with 20% RD. Earlier no duty was charged for imports from India under SAFTA agreement. Indian exports of ingots rose sharply last year.
What is SAFTA agreement?
SAFTA is a trade agreement amongst SAARC eight nations viz Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan. This agreement is done to promote trade and economic growth in South Asia by reducing tariffs for intra-regional exports.
Duty Structure are:
| Chapter (HS Code) |
Product | Specific Duty (SP) in Taka (BDT) |
Custom Duty (CD) |
Requlatory Duty (RD) |
VAT | |
| 72021100, 2100, 3000 |
Ferro Manganese/ Ferro Silicon/Silico Manganese |
Old | 0 | 5% | 0 | 0 |
| New | 0 | 0 | 15% | 15% | ||
| 7201 | Pig Iron | Old | 1,000 | 0 | 0 | 0 |
| New | 0 | 0 | 5% | 15% | ||
| 7203 | Sponge Iron | Old | 1,000 | 0 | 0 | 0 |
| New | 0 | 0 | 5% | 15% | ||
| 7204 | Scrap | Old | 1,500 | 0 | 0 | 0 |
| New | 0 | 0 | 5% | 15% | ||
| 8908 | Ship Breaking Scrap | Old | 1,500 | 0 | 0 | 0 |
| New | 0 | 0 | 5% | 15% | ||
| 7206 | MS Ingot | Old | 7,000 | 0 | 0 | 0 |
| New | 0 | 0 | 20% | 15% | ||
| 7207 | MS Billet | Old | 0 | 0 | 20% | 15% |
| New | 0 | 0 | 20% | 15% |
* Based on todays market value
1 USD = 80.5 Bangladeshi Taka
Source: SteelMint Research
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