03 April 2013

Pakistani Shipbreakers refuse to accept rise in Income Tax, Sales Tax rates:

Shipbreakers on Thursday refused to accept the current rise in sales tax and income tax and urged the Federal Board of Revenue (FBR) for a level playing filed for all stakeholders. Chairman of the ShipBreaking Association of Pakistan Dewan Rizwan Farooqi said that the industry was already facing several internal and external issues, while the increase in sales tax and income tax had compounded the situation for the ailing industry.

On February 26, FBR issues SRO 140, increasing the incidence of income tax on the shipbreaking industry, raising it from one percent to 5 percent. Subsequently, SRO 243 was issued on March 26, raising the sales tax ratio. As per new SRO, shipbreakers will now pay Rs 5,860 per ton sales tax, instead of the previous rate of Rs 4,840 per ton, he said.

Meanwhile, the FBR provided some relief to melters: they are now paying sales tax at the rate of Rs 3,200 per ton, down from Rs 5,600 per ton, he said. The current rise in income tax and sales tax had directly affected shipbreaking activities at Gadani, employing as many as 25,000 workers, Farooqi said.

"We are unable to finalise new shipbreaking deals. The current rise in income tax and sales tax will directly increase the cost of dismantling (ships)," he said. Since 1994, ship breakers had been paying income tax at the rate of 1 percent at import stage on cost and freight (C&F) value of scrap vessels under Section 148 of the Income Tax Ordinance which was treated as full and final liability, he said in a letter sent to the chairman of FBR.

Melting industry, he said, were currently liable to pay just 1 percent income tax while ship-breakers were being made to pay 5 percent income tax, which "is a serious anomaly and not at all justified". "The ship-breaking industry is the only revenue generating business employing local labour in the least developed Balochistan," Farooqi said, adding that ship-breakers were struggling to keep this sector viable in the absence of electricity, gas, water, sewage and above all poor condition of roads.

He said that the shipbreaking-industry contributed Rs 1.509 billion on account of income tax during the period between July 2008 and June last year, while an additional amount of Rs 14 billion was paid as sales tax during the same period. However, despite making this contribution, shipbreakers are being made to pay sales tax at the rate of Rs 5,862 per ton, instead of the previous rate of Rs 4,840 per ton. "This is an increase of nearly 23 percent in sales tax."

According to him, melting industry had been provided a huge incentive of 43 percent reduction in sales tax. This reduction, he said, would result in an annual loss of nearly Rs 9.6 billion to the national exchequer. Farooqi suggested that the FBR should impose a single tax at the rate of 2.75 percent under Sections 148 and 153 as full and final liability of shipbreakers, instead of two taxes - income tax withholding tax.

He said that all taxes already paid should be treated as final liability and no further tax/arrears should be demanded from shipbreakers. He has also urged the FBR to reduce sales tax on ship breakers up to Rs 3,200 per ton, instead of charging Rs 5,862 per ton.

"Timely action by the FBR will only save ship-breakers from a complete collapse. It will also help them keep the industry viable to provide quality and standard material to the steel industry at competitive rates, besides generating revenue for the government," Farooqi said.

Source: Business Recorder. 29 March 2013

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