EDITORIAL: All eyes are now on the Federal Board of Revenue (FBR) as it investigates alleged large-scale misdeclaration of prime/brand new steel as scrap at the import stage, right under the nose of all relevant authorities, and its debilitating effect on the documented steel manufacturing sector. The Federal Tax Ombudsman (FTO), acting on allegations made by large steel producers, has given the Board till end-of-July to present a detailed report on this phenomenon which, if true, is hurting the formal sector, encouraging corruption and smuggling, robbing the treasury of billions in revenue, and discouraging further investment in the industry.
There’s more. It turns out that pretty much everybody in the commerce ministry and FBR has been aware of this problem for at least 5-7 years. The Pakistan Association of Large Steel Producers (PALSP) has been crying itself hoarse about how certain groups are exploiting loopholes in the Import Policy Order and Customs Rules to effectively smuggle fresh steel into the country by marking it as re-rollable scrap. They’ve also presented “verifiable facts” about how exporting countries declare the steel as brand new but local authorities misdeclare it as scrap. And how this practice, which has led to unlawful import of about 500,000 to one million tons of brand-new steel into the country over the last five years, costs the kitty about Rs 10-15 billion every year. There’s also record of Customs Intelligence, tipped by similar intelligence no doubt, blocking “huge consignments” of brand new steel at Port Qasim in 2021.
Why then, one must ask in light of such compelling evidence, have PALSP’s repeated requests to the commerce ministry as well as FBR, to amend relevant rules to stop this practice, gone unanswered? This is quite shameful, especially since FBR on one occasion upheld the steel industry’s stance and issued an SRO for the purpose, but such was the influence of rent-seekers and special interest groups that it didn’t make it beyond budgetary proposals. Now FBR’s report is eagerly awaited, of course, but there’s already enough out there to put two and two together and come to the conclusion, as always, that his is not just about one sector. Rather, this case once again lays bare everything that is wrong with the system; from misuse of office all the way to weak writ of the law. And it goes without saying, unfortunately, that FBR’s investigation will reach the right conclusion only if there are no eager palms out there, ready to be greased by what the steel sector mafia can pull out of its deep pockets this time.
Since these are no ordinary times, and the country needs more, not less, investment to survive, and the steel sector has been propped up for quite a while to become a strong export earner, the government must make sure that this issue is addressed as an urgent priority. It’s very clear that the whole system is rotten to the core; and corruption only thrives because the law is not implemented properly. Perhaps the utter desperation of the government to mend the economy to survive the political storm that it is in, for which it is going to have to ensure transparency, will be the game-changer that Pakistan needs.
If local taxpaying industries cannot find basic protection under the law, and criminals and smugglers are able to easily make sure that the sun keeps shining and they keep making hay, then there is no chance that the economy can survive the storm. But if such things can prompt a very serious turnaround in official policy, not only will justice be served but the State Bank of Pakistan will also breathe a lot easier whenever it will present national reserves figures.
Right now, they’re not just letting the steel sector rot, but their inaction also makes them enablers, not just ringside watchers, as the economy hits icebergs that can, and should, be easily avoided; and then simply sinks.
Copyright Business Recorder, 2022
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