ISLAMABAD: Despite the commitment of the government, the Tax Laws Amendment Ordinance 2021 has not introduced any amendment to the Income Tax Ordinance 2001 to reduce turnover tax on the retail side of the steel sector.
According to the presentation of the domestic sector to the Federal Board of Revenue (FBR), here on Monday, after promulgation of the Tax Laws Amendment Ordinance 2021, the FBR has refused to reduce turnover tax on the retail side of the steel sector under the latest presidential ordinance.
This is despite the fact that there has been a broad consensus within the FBR as well as the ministries of industries that it is an unfair tax that is counterproductive and has failed to produce the desired results.
Last year, Federal Minister for Industries Hammad Azhar promised the steel sector to reduce the turnover tax on the retail side of the steel sector from the currently high 1.5 percent to .25 percent.
The steel sector was requesting the government to reduce it now by taking a timely step, instead of waiting for the next budget.
The FBR had already reduced the turnover tax on cement to .25 percent ignoring the fact that steel and cement are complimenting sectors.
The steel sector has been pleading with the government to reduce the turn over tax; however, the same has not been done through the said Ordinance.
As the backbone of the economy and especially the construction industry, steel is a very critical factor for the success of the ambitious “Naya Pakistan Housing project” of the prime minister.
One of the factors that resulted in triggering crisis for the local long steel sector was the abrupt abolishment of Special Procedure in 2019-2020 budget and switching to normal GST ad valorem regime.
This step later resulted in tax evasion, resulting in huge loss of revenue to the FBR.
The documented sector is appeared to be at a disadvantage as compared to the informal sector.
Local steel sector further argued that after drastic increase in the prices of rebars in recent months due to increase in the cost of raw material internationally, the local market is witnessing decline in the prices of rebars.
The price of rebars that peaked to Rs140,500 has now been reduced to Rs130,500 per ton.
The prices of bars increased in Pakistan as the prices of scrap shot up from $350 in October 2020 to $500 plus in early 2021. The prices of scrap increased due to severe cold weather as well as Covid-19, which resulted in low volumes of scrap collection internationally.
The prices of rebars are expected to shrink further in the coming months to settle down to normal prices as the domestic industry is coping up with the changing dynamics.
This declining trend in steel prices is bringing hope for domestic construction industry of the country.
The local steel industry has been through deep crisis in the last two to three years and most of the documented steel sector declared heavy losses in the recent years.
However, at that time, the steel sector did not pass on the impact of increase in the prices of rebars.
Some of the factors that contributed to this situation were devaluation of Pak rupee, increase in the interest rates by the SBP, and it was coupled with some of the measures taken by the FBR in 2019, especially as a result of change of regime from Special Regime to the Normal GST regime (ad velorum) resulting in drastic increase in the GST amount.
During these years, the cost of all kind of inputs went up including the cost of electricity.
Price of steel bars used in reinforced concrete construction peaked almost 20 to 25 percent in the last three months, and elsewhere to various degrees.
However, the sudden rise was not noticed only in steel rebar price but also an increase was experienced in the other construction items (such as cement, pipe fittings, bricks, and tiles etc) as well.
It is expected that the prices of steel will settle in this quarter and is likely to create demand recovery for long steel players, the local sector added.
Copyright Business Recorder, 2021