Steel melting industry expresses its surprise over issuance of SRO

Steel melting industry has expressed surprise over issuance of S.R.O. 295(I)/2020 by the Federal Board of Revenue (FBR) during the ongoing lockdown without any input of the industry, seeking additional information of electricity consumption in the monthly sales tax returns.

Talking to Business Recorder, Farhana Mowjee Director Razaque Steels (Pvt) Ltd stated that the FBR had reportedly alleged that the steel melters and re-rollers are not submitting their actual figures. The FBR has issued S.R.O. 295(I)/2020 at a time when the coronavirus lockdown is at its peak in Pakistan and no input has been taken by the tax authorities.

Explaining the issue, she stated that the situation in the steel industry and the difficulties they are facing in submitting their returns of Sales Tax in FED mode (whatever that is supposed to mean - it's a "creature" invented by the FBR which doesn't exist in settled law) since July 1, 2019 have been conveyed to the then Chairman, FBR, by various steel bodies and their representatives and it does not justify the suggestion that the steel melters and re-rollers are deliberately not submitting accurate figures. The consumption of electricity and the production is meant to be entered into Annexure K of the Sales Tax returns.

Whilst the rest of a Sales Tax return is an interactive form where numbers and results of calculations appear automatically Annexure K is generating "nonsensical" data. Consequently, the FBR has from time to time written to companies asking them to submit their electricity bills and production data to which they have complied with, she said.

It appears that this newly released SRO which has come out during a lockdown period without much knowledge of the industry is probably seeking to improve the information that is generated by the system automatically in the Annexure K, Mowjee stated.

At the time of the introduction of the new Sales Tax regime after July 1, 2019, industry had raised several issues with the FBR. PMs advisor on Finance is also aware of the issues which include double taxation on the closing stock held by companies (and physically inspected by FBR representatives) as at July 1, 2019 - this is because under the previous method of taxation, Sales Tax was paid at the time of Production (regardless of whether goods were sold) and after July 1, 2019 Sales Tax is to be paid at the time of sale. Therefore for the goods held at 1.7.2019 companies have paid Sales Tax twice; firstly at the time of production and then at the time of sale. This is one issue. There was also the issue that the FBR set certain benchmarks for production and this was to be monitored through the non functioning Annexure K - industry representatives pointed out that while the more modern mills could easily comply with the benchmarks the older less efficient mills would need time to either close down and go out of business or bring their productions facilities up to par, Director Razaque Steels (Pvt) Ltd stated.

"None of these issues has been acknowledged let alone addressed by our tax authority," she stated.

There are other issues too which the industry is facing that include the fact that 4.5% Withholding tax on its turnover works out to a huge amount and most industries have vast amounts of Advanced Income Tax paid to FBR in this way but when they ask for a refund an audit is promptly started.

At present, there is no law to direct the FBR to finish one audit within a certain length of time before starting another. Therefore, companies have multiple audits going on with the FBR along with tax credits being stuck. As a result, apart from the tax credits in sales tax which have built up as described in the last year there are also large amounts of Advance Income Tax to be adjusted.

In the past year when the rupee has devalued substantially and where the markup rates have shot up not to mention the recent losses due to the ongoing lock down of companies it is adding insult to injury to suggest straightway that there is some kind of concealment going on.

Mowjee added that the new Chairman FBR should through the correspondence sent to her predecessor on all the issues faced by the industry and offer to meet industry representatives with an open and positive mind and with a view to resolving genuine issues in the spirit of good governance and reform.