Misclassification of steel products: FBR urged to recover taxes from importers

ISLAMABAD: The documented steel sector has conveyed to the Federal Board of Revenue (FBR) that misclassification of steel products is causing massive revenue loss to the national exchequer, suggesting recovery of taxes from importers of misclassified items.

In a communication to Member, Customs-Operations FBR on Tuesday, the industry informed that as the largest importers and consumers of re-meltable/ shredded/ HMS/ bundles scrap, it urged the concerned government departments to curb this unlawful activity by taking strict action against these unscrupulous elements. Also, FBR/ Customs department must ensure the recovery of the actual amounts.

FBR urged to resolve issues of steel sector

The FBR was informed that the misclassification/ under-invoicing of hot-rolled strips (PCT: 7211.9010) and wire of iron or non-alloy steel (PCT: 7217.1000) continues under the garb of steel scrap (PCT:7204)(at Karachi ports) at the import stage. The menace of misclassification is destroying the documented sector & ethical players.

The industry argued:

1- Misclassification/ under-invoicing of hot-rolled strips (PCT: 7211.9010): Details revealed that the secondary quality hot-rolled strips (PCT: 7211.9010), attracting a Customs Duty of 20%, Additional Customs Duty of 6%, Sales Tax of 18%, and Income Tax of 2%, are being misclassified and imported by incorrectly declaring them as “Iron and Steel Re-meltable Trimming End Cutting Scrap” or similar variants under PCT: 7204.4100, PCT: 7204.4990, which has lower duties (0% Customs Duty, 5% Regulatory Duty, 2% Additional Customs Duty, 18% Sales Tax, and 2% Income Tax). This misclassification violates the Explanatory Notes to the HS Coding System, the General Rules of Interpretation, and the structure of the Pakistan Customs Tariff, severely affecting local documented industries.

Moreover, these Hot-Rolled (HR) trimmings are a by product of HR Coil and are not scrap. The misclassification of these HR Strips as scrap promotes under-invoicing, enabling importers to pay lower duties and taxes based on incorrect valuation rulings. Currently, these imports are being cleared at $390 per MT under heading 7204, instead of the actual valuation of $650 per MT under heading 7211, as per London Metal Bulletin and Valuation Ruling No. 1718/2022.

2- Misclassification/ under-invoicing of wire of iron or non-alloy steel (PCT: 7217.1000): Moreover, the wire of iron or non-alloy steel (PCT: 7217.1000) is subject to Customs Duty of 20%, Additional Customs Duty of 6%, Regulatory Duty of 30%, Sales Tax of 18%, and Income Tax of 5.5%.

However, these wires are being misclassified and incorrectly declared as “Iron and Steel Remeltable Tyre Wire Scrap” or similar variants under heading 7204.4100 and 7204.4990, which attracts lower duties (0% Customs Duty, 5% Regulatory Duty, 2% Additional Customs Duty, 18% Sales Tax, and 2% Income Tax).

This misclassification violates the Explanatory Notes to the HS coding system, the General Rules of Interpretation, and the structure of the Pakistan Customs Tariff, severely impacting local documented industries.

Moreover, the misclassification of these wires as scrap promotes under-invoicing, enabling importers to pay lower duties and taxes based on incorrect valuation rulings. Currently, these imports are being cleared at $390 per MT under heading 7204, instead of the actual valuation of $850 per MT under heading 7217, as per London Metal Bulletin.

The menace of misclassification is not only causing revenue loss to the national exchequer but also badly impacts the documented steel sector. Unscrupulous elements are importing and trading these misclassified items, enabling them to reduce their costs and undersell their finished goods, thereby earning handsome margins and making unviable for ethical player to compete, the industry added.

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