KARACHI: The Pakistan Iron & Steel Merchants Association (PISMA) has issued an urgent appeal to the Federal Board of Revenue (FBR), calling for the immediate withdrawal of a recently implemented 2.5 percent withholding tax. This demand comes in the wake of a reported 80 percent plunge in sales volume within the iron and steel sector.

In a letter to the FBR chairman, the PISMA outlined the devastating impact of the tax measure, which was introduced in the budget 2024-25. According to the association, the new withholding tax, levied under Section 236 and targeting non-filers, has decimated their business, reducing it to a mere 20 percent.

The PISMA said that approximately 90 percent of their clientele are non-filer and the financial ramifications of this tax are significant, adding between 7,000 to 7,500 Pakistani rupees per metric ton to the cost. Therefore, the collection of this additional tax is impossible, as buyers are unwilling to shoulder the extra expense. Moreover, there are also concerns that this measure could inadvertently encourage corruption.

The PISMA also highlighted the challenging position of distributors, who typically receive a 1.5 percent commission on sales. After factoring in a 12 percent income tax deduction, their net commission amounts to just 1.32 percent, or between 3,000 to 3,500 rupees per metric ton. This slim margin leaves distributors unable to absorb the new tax burden, the letter said.

Given the steel sector’s substantial contribution to national tax revenues, the PISMA is strongly urging the FBR to rescind the 2.5 percent withholding tax under section 236H for distributors.

Meanwhile, industry experts warn of potential widespread closures if the tax remains in effect, as many distributors may find it financially untenable to continue operations under these conditions.

Copyright Business Recorder, 2024