01 May 2012

Steel industry demands change in tax regime:

Islamabad—Steel industry has suggested comprehensive changes in the sales tax, income tax and withholding tax regimes in the upcoming budget (2012-2013) to ensure a balance in the imposition of duties and taxes on the steel melting and ship-breaking industries.

Steel melters had proposed a revision of the taxation regime to compete with shipbreakers.

Stressing the need for providing a level playing field to both, the steel industry claimed that ship-breakers had been given advantage in taxation, which needs to be checked in the coming budget. An equal taxation regime, they said, should be applicable for both the steel sector and ship breaking industry.

The melting industry fulfills 80 percent of the needs of the domestic industry.

According to the industry, the past three years had been most difficult for the steel melting industry. This industry is one of the highest revenue generating industry in Pakistan. Currently, the melting industry has the capacity to manufacture four million tons of billets per annum, but is hardly able to make 2-2.5 million tons a year.

This shortfall can be verified from monthly production data for the past two years, sources said.

The steel industry also proposed an automatic formula for imposition of customs duty, sales tax and income tax on all components of the steel industry.

Giving a comparison of the steel and ship-breaking industries, sources said that steel melters paid 1 percent withholding tax at the import stage. But this is not their final tax liability. Ship-breakers also paid one percent at the import stage and this is their final income tax liability.

Sources said that the local scrap dealers had not been registered till-date. According to FBR’s directives, steel melters had to bear additional cost of 1 percent on their local purchase. The steel industry also had to pay income tax while submitting returns every year. Ship breakers do not have to pay this tax.

At the same time, during shipbreaking, a lot of costly machinery was extracted which was sold at high price. Similarly brass, copper, aluminum so extracted gave good dividends to shipbreakers. The exchequer, steel industry said, needed to be benefited by levying heavy duties on shipbreakers since they were making good profits without paying due taxes, sources said.

Sources said that ships had a lopsided advantage on the duty structure as they were paying only 70.5 percent sales tax on ship plates. No duty is being paid on headings such as oil, copper, machinery and generators which were being sold at around Rs100,000 per ton against ship plates being sold at just Rs55,000 a ton. Ship plates were also being sold between Rs70,000 and 74,000 a ton (usable plate) and were not being cut as per customs specifications. For construction purposes, it was not accepted anywhere in the world. It was also not approved by PSQCA, but they were being sold by re-rollers on heavy prices, industry stated.

Moreover, the current price of ferro alloys is $1,010 per ton against $700 in 2007. Melters paid $310 per ton extra at import stage.

Sources said that the impact of electricity on the production of furnaces was directly proportional to the rate of electricity. Since the rates had been doubled, the impact was also twofold.

In ship-breaking, a handful of temporary labor was employed. This was restricted to the Gaddani area. On the other hand, people connected in this melting industry and earning their livelihood right from villages collecting scrap up to furnaces would run into millions.

“Keeping the above comparative data in view, how can the steel melters compete with ship breakers?” melters questioned. Sources said that every steel melting furnace was equipped with a laboratory to maintain specifications. The Pakistan Standards and Quality Control Authority kept a strict check and only those furnaces, which come up to desired standards, were encouraged by the government. On the other hand, this was not so in case of rusted ship plates dipped in sea water for years. The bars made from ship plates did not match international standards for construction industry.

A thought process started in the sugar industry to establish steel furnaces by self generating electricity by burning begasse (sugar cane waste). To evade (a levy of) Rs4,800 per ton is a big attraction. For example, one unit near Faisalabad installed in a sugar mill was operating for the past 2-3 years and evading a huge amount of sales tax. They were paying far less than their production having two 15-ton capacity furnaces, with an automatic bar mill, running around the clock.

Source: Pakistan Observer. 30 April 2012

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