Pakistan's steel industry has protested against the imposition of three new taxes - 20 percent sales tax, 3.5 percent income tax, and one percent excise duty on the sale of finished products to the non-corporate sector, says a Recorder Report.
A three-member delegation of steel industry has held talks with the Federal Board of Revenue chief, Abdullah Yusuf and informed him that 20 percent sales tax deduction and 3.5 percent income tax on the sale of finished steel products would not only add to the cost of construction/housing industry, but would also make the steel sector hostage to taxation.
They have pleaded with the FBR chief that if the tax formula is accepted as such, it will make steel sector liable to as many as six types of taxes of different kinds. These include Rs 3,800 fixed sales tax on melting, 20 percent sales tax deduction at finished stage, 3.5 percent income tax on supplies to non-corporate sector, one percent excise duty and one percent withholding tax. It also shows that the taxes imposed at the finished stage of steel products are non-adjustable.
The steel industry representatives have further said that the way the new taxes have been imposed on steel industry in the Budget 2007-08 also indicates that the government is not averse to repeating the same tax for the same industry at different stages, which amounts to an aberrant multiplicity of taxation.
The steel industry's position that the levy of three new taxes will further increase the cost of construction in the country is well founded. The iron and steel industry is recognised the world over as the most crucial one for the development of a self-reliant and vibrant economy.
This industry, however, depends heavily on iron and steel as resource inputs. It, therefore, holds the key to sustained growth of engineering sector, and hence the development of the country's economy.
Pakistan's steel industry and FBR have been at loggerheads on levying quantity-based tax on steel production instead of the present benchmark of electricity-based levy to enhance tax revenue from the sector. FBR is believed to have also asked the steel industry to pay sales tax on actual production, as the electricity-based benchmark has failed to generate more revenue.
The revenue bureaucracy has often blamed the steel industry for not paying potential tax despite receiving concessions from the government and high prices. On the other hand, the steel industry has often questioned FBR's system and claimed that it was paying taxes properly and was not involved in any under-invoicing or tax evasion.
There have also been differences between the two regarding the amount of tax paid, as FBR maintains that the steel industry paid only Rs 1.3 billion sales tax last year, while the industry claims it had paid over eight billion rupees.
There was a perception that in the face of stiff resistance from the steel industry, it looked unlikely for the government to impose tax under the new benchmark of quantity-based tax in the 2007-08 budget, but this has been done.
The fixed rate of sales tax has been worked out on the basis of electricity units consumed by steel and melting units. The government increased sales tax in the budget from 15 to 20 percent on import of scrap/ingot iron. This met with stiff resistance from APRMA and APMA.
These two key stakeholders of steel sector had reportedly informed the FBR that the increase in sales tax at the import stage on scrap would hurt the industry as well as the consumers to such an extent that it would become unbearable, and finally it would result in heavy loss to the steel and melting industries.
Their representatives demanded of the FBR to change the sales tax regime, and suggested that a fixed sales tax could only be imposed at the melting stage. However, the steel industry is resisting one percent excise duty and 25 percent regulatory duty on the export of finished MS bar products to Afghanistan.
It is of the view that one percent excise duty on finished steel products is unjustified when Rs 3,800 fixed sales tax was imposed at the melting/billet-making stage. The steel industry's demands need to be considered sympathetically, as it is a pivot of the country's economy.