Steel industry: FBR asked to introduce interim tax relief measures

ISLAMABAD: The steel industry has asked the Federal Board of Revenue (FBR) to urgently introduce interim tax relief measures to ensure availability of steel scrap till issue of letters of credit (LCs) is resolved.

In this connection, Afaque Ahmed Qureshi, Member Inland Revenue (Policy) FBR has been requested to temporarily reduce withholding tax to 0.25 percent on scrap supplies and one percent extra sales tax on supply from non-registered scrap dealers till resolution of the issue of the LCs by the State Bank of Pakistan (SBP).

The industry has informed the FBR Member that the steel industry is facing crisis like situation and is moving towards closure due to non-opening of LCs. As a result, at this point in time, the import of scrap has come to grinding halt which is paralyzing the production activities of steel sector. The steel industry is largely dependent on imported raw material because the availability of steel scrap through local source is about 1.5 metric tons (MTs) whereas the total demand is nearly 6-7 metric tons.

Other problem faced by the documented long steel manufacturers is that the local scrap supplies are totally undocumented and all dealers operating are unregistered with the FBR. They mostly supply scrap to FATA/PATA which is a non-tax area. The large steel producers, which are documented sector, cannot buy steel scrap from these sources due to following taxation laws:

(i); Very high 9.5 percent withholding tax (WHT) on supplies due to the fact that all such dealers are non-registered.

(ii); Levy of 5 percent extra sales tax as all these dealers are non-registered with FBR sales tax department.

Both of these levies have practically outclassed large steel producers from local buying. The steel sector has been reluctant to use of local scrap due to the fact that due to bad quality of local scrap, it consumes additional electricity in melting/ and other process. However, at this stage, the industry has no other option but to use the local scrap.

To ease the situation and make it viable for the long/ documented Steel industry to operate, the industry has urged the FBR to take following measures for interim period till opening of LCs by banks:

Firstly, the withholding tax on scrap supplies to be 0.25 percent from non-registered dealers.

Secondly, the extra sales tax to be one percent of supply from non-registered scrap dealers and thirdly, the cash purchases to be allowed from non-registered scrap dealers till opening of scrap LCs by the bank. Realising the gravity of the situation, the FBR authorities should consider the said proposals and take the needful measures on urgent basis, documented steel sector added.

Copyright Business Recorder, 2023