In a memorandum submitted to the finance minister on Wednesday, the Indian Agro Paper Mills Association (IAPMA) has stated that on the face of a lower excise duty on wood-based paper, the higher duty on agro paper will be the death-knell to the industry.

The association has also asked the finance minister to impose `actual user condition' on the import of waste paper to avoid clandestine import of finished paper. Interestingly, despite a mention in the explanatory memorandum of the budget, the provision of imposing `actual user condition' has not been included in the actual notification.

Speaking to The Financial Express, association president Pramod Jain said that a total exemption from excise was being expected from the industry which is going through a critical phase due to excess and clandestine import of paper. "In our pre-budget recommendationwe had asked that if exemption is not possible the government should fix the excise rate at 5 per cent irrespective of the production. We were shocked to see that in a bid to rationalise tax structure an excise slab of 8 per cent was fixed for the entire industry."

Previously, paper mills up to 15,000 tonne of clearance were subject to 5 per cent excise whereas units having higher production were charged 8 per cent. "Rationalisation of this kind will totally cripple the small units-dominated industry."

Jain said that ever since excise was first imposed on the industry three years ago, the government has been tinkering with the rate. "Because of the resulting uncertainty there has been no significant investments in the sector."

To make matters worse for manufacturers, excise on wood-based paper has been brought down to 16 per cent from 18 per cent. This has narrowed the gap between the two categories by 13 per cent. "Now manufacturers will be forced to raise prices which will make their productuncompetitive," said Jain.

It is ironical that the government has increased duty on a product which is made out of waste material and decreased it on a product made of a scarce product like wood, said Jain. "The additional levy has sent a wrong signal to investors and if things are not altered there are chances that the enormous potential of the industry will remain untapped." Studies point out that not even 25 per cent of the available agro-residue is being used by the industry.

The exclusion of imposition of `actual user condition' on import of waste paper in the budget is also bad news to the industry. "As customs duty on waste paper is only 5 per cent against that of 35 per cent on finished paper, a large amount of the finished variety is being imported under the guise of waste paper. This had resulted in unfair competition in the market."

Excess import of newsprint to the extent of 2 lakh tonnes per year is also affecting the industry, said Jain. The memorandum sent to the finance minister alsomentions that in order to ensure that the concession given to newspaper manufacturers is not misused, traders should be barred from importing newsprints.