Steel sector assails delay in the implementation of budgetary steps

LAHORE: The inexplicable delay in the implementation of budgetary measures modifying tax regime for the steel producers procuring local scrap from the unregistered suppliers to stop tax evasion as well as to prevent its harmful impact on organised steel makers has already caused the exchequer a loss of over Rs 30 billion since July.

Tax compliant, organised steel makers said the government is accruing a monthly tax loss of Rs 8 billion due to the reluctance of the FBR to impose 18 percent sales tax on steel furnaces using local scrap to plug tax evasion by the melters.

“This is happening at a time when the FBR is facing a huge shortfall in the tax target, and trying to improve enforcement and compliance,” Javaid Mughal, one of the country’s largest steel makers, said.

The tax authorities haven’t issued the SRO despite several repeated meetings of steel millers with the top FBR officials to get the order implemented.

The government had approved this change to bring billet produced from the local scrap into the tax net and document the unregulated part of the steel manufacturing industry.

The tax compliant companies using imported scrap pay a total tax of 18pc - or Rs40500 per ton of billet: Rs25,000 at the scrap import stage and Rs15,500 on their sales. On the other hand, those who use local scrap get away without paying tax on their value chain.

“This situation has caused a significant revenue shortfall for the government and sales loss to the taxpaying organised steel sector with the tax evaders undercutting retail prices. To resolve this anomaly, the prime minister had ordered to exempt the sales of local scrap and instead made the furnaces using it liable for payment of total tax in lump sum at the rate of 18 percent, like the rest of the industry, in the current year’s budget,” the chairman of the Mughal Steel said.

He lamented that the tax bureaucracy is delaying issuance of a simple SRO to start collecting the tax for unexplained reasons since July. “The steel sector supported this reform, highlighting the immense revenue potential and stressing the critical need to control the illegal trade crippling the sector. It was expected that this single measure would have helped the Government to net Rs85-100 billion annually.”

“This delay seems strange given the fact that the FBR is developing a transformation plan for tax compliance and enforcement,” he added. “In this grim landscape of economic mismanagement, Pakistan is left grappling with the fallout of a disastrous tax policy that has brought an important industry on its knees.”

According to him, at least two major steel mills in Karachi have partially shut down their operations after suffering massive losses due to price competition from the tax noncompliant melters. “Sadly, there is no accountability of FBR officials for not taking timely decisions, even if it amounts to huge revenue loss,” Mughal concluded.

Copyright Business Recorder, 2024