Steel Melting Industry has proposed imposition of an adjustable duty on ship breaking industry in budget (2011-2012) arguing that the melters are paying comparatively high amount of sales tax on power consumption as compared to ship breakers. Sources in the Engineering Development Board (EDB) said the proposed adjustable duty would enable the melters to compete with ship breakers.
The data prepared by the steel melters industry revealed that according to SRO-678 each and every steel melter have to pay sales tax at the rate of Rs 6/- per unit of electricity consumed ie 6x800=Rs 4800/- whereas ship breakers have to pay sales tax at the rate of Rs 4545/- per metric ton of re-rollable scrap supplied by them. The steel melters are paying slightly more on account of sale tax.
The impact of electricity on the production of furnaces is directly proportionate to the rate of electricity. Since the rates have been doubled the impact is also two fold. Now, there is a difference of Rs 3200/- in electricity rates since year 2007 whereas electricity was not used by the ship breaking industry.
The steel melting furnaces are equipped with a laboratory to maintain specifications with Pakistan Standards and Quality Control Authority (PSQCA) keeping a strict check on them and only those furnaces which meet the desired standards are encouraged by the government. While on the other hand this is not so in case of rusted ship plates lying in saltish water of sea may be for a long time. The bars made from the ship plates, steel melters claim, do not match up to the international standards for construction industry.
Moreover, the steel melters complained that 1% withholding tax collected from them at import stage was not considered their final liability of income tax as was done in the case of ship breakers and steel melters are also paying 5% WHT income tax on electricity consumption. This turns out to be a huge amount since electricity is utilised as a raw material in the furnaces whereas no electricity is used by the ship breaker industry. The rise in the price of ferro alloys from $700 in 2007 to $1200 per ton adds Rs 1500/- per ton additional burden on the melters.
In view of the above comparative data, Pakistan Steel Melters Association stated it was not possible for the melters to compete with ship breakers. It is suggested that an adjustable duty may be levied on ship breaking in a manner that it remains $50/60 higher as compared to meltable scrap.