LAHORE: The government has put the last nail in the coffin of the steel industry by abolishing Federal Excise Duty on steel industries located in ex-FATA/PATA regions. This step has come out as a disaster for the tax compliant steel sector and pushed them out of competition.
This was stated in a statement issued by Secretary General Pakistan Steel Melters Association Major Mansoor Ahmed (retd) here Tuesday. Pakistan Steel Melters Association is the largest representative body of steel sector with its 214 members all over Pakistan. Despite the inevitable necessity of steel sector's growth, Pakistan's documented steel sector has lagged behind the desired progress due to government's negligence and poor policy implementation.
Prior to the budget 2021-2022, the documented steel sector was already suffering from a challenging time due to COVID-19 adverse effects, increased production costs and low profit margins. However, to add the final nail in the coffin, the government abolished Federal Excise Duty on steel industries located in Ex-FATA/PATA regions.
This step has come out as a disaster for the tax compliant steel sector and pushed them out of competition. There are no proper check posts to restrict such tax-exempt goods from tribal areas. The law enforcement agencies have failed to control the movement of such goods outside Erstwhile FATA/PATA regions and they are openly being dumped in tax paying areas of the country. This has created an unfair competition and has forced several firms to shut down and incur huge losses.
Instead of giving relief to the formal and documented steel sector in the current budget, the government further worsened the condition for them by removing FED on ERSTWHILE FATA/PATA steel sector. This step is totally against the government claim of supporting the local industrial sector for economic growth projects. As steel is considered the engine of growth for construction sector thus government should have provided adequate support to the local steel sector in the budget 2021-2022 for the success and support of projects under CPEC and Naya Pakistan Housing Scheme. Ignoring the genuine needs of the steel sector, no one will be willing to make further investments in this sector.
Government's ignorance and no beneficiary policy for the local steel sector in the current budget have caused the sector to suffer huge operational difficulties. Increase in steel prices is an international phenomena and beyond our control. Production costs have doubled due to increase in raw materials and electricity cost. Steel is an energy intensive sector. Electricity is used as a raw material and energy cost in Pakistan is double to that of the regional peers. Currency devaluation against dollar has further increased the cost of imported steel scrap. All these factors have pushed up the prices of steel re-bars.
Despite all the above mentioned factors, the local steel sector has absorbed majority of its production costs by reducing its profit margins and have transferred only a minimum portion to the end consumers. The biggest benefit of the rising prices of steel re-bars is transferred to the government in the form of huge amount of taxes and duties paid to them. Under such circumstances, it is very crucial to pay attention to the honest concerns of the local sector and provide them relief in these pressing times.
Furthermore, imposing Section 8 B of sales tax act 1990 on private steel sector is unfair. This should not be received from steel sector since it is double taxation as steel sector is already paying taxes through electricity bills and at import stage. This has drained our liquidity and shifted the working capital from company funds to FBR.
PSMA has several times highlighted these issues at different government forums but all in vein. Neglecting the local steel sector, is damaging to the overall economy. It is causing losses of worth millions of rupees to the national exchequer as well as closure of several firms and loss of employment to the workers of steel sector. It will also discourage the foreign investments in this sector. We request the government to cater to our genuine concerns to provide a level playing field and to protect the documented steel sector from collapse.
Copyright Business Recorder, 2021