The Central Board of Revenue (CBR) has withdrawn 20 percent sales tax on import of scrap/ingot iron and imposed a fixed sales tax of Rs 3,800 per ton at melting/billet-making stage. The fixed sales tax of Rs 3,800 per ton on billet and ingot stage will be in addition to 1 percent excise duty that will add around Rs 440 in the cost of one ton of steel for the consumers.
The fixed rate of the sales tax has been worked out on the basis of per electricity unit consumed by the steel and melting units. The rate of sales tax for each unit of electricity would be Rs 4.75. The sales tax of Rs 4.75 per unit counts Rs 3,800 per ton since one ton of steel consumes 800 units of electricity.
The CBR team, headed by its Chairman Abdullah Yusuf, All Pakistan Re-Rolling Mills Association (APRMA), and All Pakistan Manufacturers Association (APMA) representatives reached an understanding on sales tax controversy here on Saturday last.
The government had increased sales tax in the budget from 15 to 20 percent on import of scrap/ingot iron. This met sharp and stiff resistance from APRMA and APMA. These two key stakeholders of the steel sector had informed the CBR authorities that the increase in sales tax at import stage on scrap will hurt the industry and consumers to such an extent that it will become unbearable and finally, it will result in heavy loss to the steel and melting industries.
Their representatives demanded of the CBR a change in the sales tax regime and suggested that a fixed sales tax could be imposed at melting stage. This idea worked out and the CBR invited APRMA and APMA for brain storming.
The two sides sat daily for hours in Islamabad and finally after 10-long days long discussion they struck a deal on the controversial sales tax regime on June 27.
However, the steel industry is resisting 1 percent excise duty and 25 percent regulatory duty on export of finished MS bars products to Afghanistan. It's of the view that 1 percent excise duty on finished steel products was unjustified when Rs 3,800 fixed sales tax was imposed at melting/billet-making stage. Pakistan sells considerable quantity of finished steel products to Afghanistan and earns sizeable foreign exchange from this sector.
However, the regulatory duty and that too 25 percent on export of steel products will bring steel products export to Afghanistan to a halt. It is certain that effect of regulatory duty will add Rs 12,000 to one ton of steel exported to Afghanistan and no one can afford such a big jump in steel products prices when the option of import from other countries was already there.
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