The government has reportedly earned Rs 2 billion in just three months through a levy of Regulatory Duty on import of different steel products. On January, 14, ECC decided to levy RD on steel products with the intention to gain an additional revenue and also to provide a fair competitive environment for domestic units and imported goods.
According to official sources, the revenue stream generated by the Regulatory Duty on steel products has come from two sources, RD collected directly from imports and local units ramping up their production.
Import data shows that apart from 60,000 tons of bars, wire rods, flat products, over 89,000 tons of steel billets (PCT 7207 and 7224) totalling approximately 150,000 tons were imported from the period January 15, 2015 to date. Steel industry estimates an additional revenue generation of over a billion rupees in the last 3 months as a direct result of the RD on imported steel products.
Moreover, industry officials have claimed that capacity utilizations of local steel plants has also increased from 60% to about 70-75% as the RD has provided a fair competitive environment against highly subsidised imports that were taking advantage of unfair trade practices. Given that the steel industry has a capacity of about 5 million tons an increase in such capacity utilisation indicates that an additional tonnage of approximately 125,000 tons was produced in the period of January 2015 to date.
The additional revenue generation from local steel plants as a result of sales and income taxes is estimated to be above Rs 1 billion for the same period. Indirect taxation and the multiplier effect too must be considered.
According to sources, PSM was also deemed a beneficiary from the RD on steel items. The RD has helped PSM sell its products in the marketplace but it seems that the state-run organisation is still struggling. Although, PSM representatives have suggested a higher RD on imported steel products, industry experts believe their product mix may also be a factor.
The import data indicates that there is a significant market share of imported steel billets and yet PSM has not started manufacturing steel billets in a big way.
"There are re-rolling mills that require steel billets and given a stable supply and fair price they would much rather purchase from Pakistan Steel than import," mentioned an executive from a re-rolling mill in Karachi.
In the recent few weeks, Pakistan Steel Melters Association has demanded an increase in RD on steel products to as high as 40%. PSMA is the largest value addition segment in the steel industry with over 200 registered units all over Pakistan and an investment base of over Rs 100 billion.
"International steel prices have plummeted and foreign countries are still giving subsidies in one form or another to save their own steel industry. Why shouldn't we protect our industries from such un-fair practices? A 40% RD would give a further impetus to local entrepreneurs to expand capacity and invest," stated a representative of PSMA.
Some industrial sectors have challenged the decision of the ECC taken on the recommendations of Privatisation Commission dealing with the privatisation matters of the PSM.
PAAPAM's top brass also met with the officials of Ministry of Industries and Production, FBR and other concerned stakeholders and pressed them to withdraw RD as it is hurting them.