02 September 2013

Shipbreaking industry: levy of FED to be disastrous: PSBA

Shipbreaking industry has feared that imposition of new tax would push the industry to a permanent closure, besides rendering tens of thousands of workers associated with the business jobless. Industry experts said that shipbreaking industry is one of the major industries of Balochistan province contributing towards its economic growth. At this stage levy of Federal Excise Duty (FED) on shipbreaking industry will result in the complete and permanent closure of the industry.

They said that ship-breaking industry not only supplies better quality steel at cheap rates to the nation but also provides directly and indirectly much-needed employment to the people of Balochistan in particular and in general to the masses of this country.

The industry has already endured a closure of five years during 2002-2007 and despite stiff competition in the world market, presently industry is growing rapidly, besides contributing Rs 7 billion annually to the national exchequer on account of taxes, they added.

"Revival of the ship-breaking industry has not only created thousands of new job opportunities in Balochistan, but it is also providing quality steel bars at cheap rates to the masses," said Dewan Rizwan Farooqui Chairman Pakistan Ship Breakers Association (PSBA).

In this inflationary era, when prices of all items are rising rapidly and the construction cost is increasing, the rate of steel bars (made by ship plates) is Rs 70,000 per ton when the current exchange rate has reached Rs 104 per dollar. Previously, during 2006 when the exchange rate was Rs 65 and the price of steel bars was Rs 80,000 per ton. Decline in the steel bar prices is only because of cheap availability of ship plates for steel bars making, he explained.

Chairman PSBA has also proposed one percent withholding tax on smelters and ship-breakers instead of any Federal Excise Duty (FED). "One percent WHT under Section 153 should be levied on smelters and ship-breakers which will be non- adjustable. Shipbreaking industry will pay this tax at import stage and smelters have to pay on their consumed electricity units. The federal government can generate revenue of Rs 3.6 billion through levying this proposed WHT," he added.

He said that there is already discrimination by the Federal Board of Revenue (FBR) as shipbreakers are paying income tax five times higher then smelters. The federal government has imposed 5.5 percent income tax on shipbreaking industry and one percent on melting industry. In addition, smelters have some extra benefits as their income tax is adjustable and they are taking refund by paying only half percent turnover tax, he informed.

He said that the country is facing a worst power crisis and without consuming a single unit of power, the ship-breaking industry is supplying a sufficient quantity of ship plates for steel bars and if ship-breaking industry faced closure, than enough electricity will be required to produce one million tons rerollable scrap for melting industry to meet the domestic steel bar demand.

Although general public is direct beneficiary of the cheap ship plates, however, some elements for the steel industry are lobbing for unfair taxes on ship-breaking industry to reduce the difference between prices of ship plates and billet, Dewan said.

It is a world-wide practice to import ships for scrapping under one head and taxes/duties are levied on these vessels as one unit, therefore the smelters allegation that ship breakers paying sales tax on 70.5 percent is not valid.

"Unfortunately smelters keep harping the same old tune about the price difference of Rs 1,200 per ton between ship-plates and billets. This is not an issue as the price difference of Rs 1,200 per metric ton in the year 2000 was about 6.5 percent of the then existing billet price of around Rs 18,000 per ton while this difference of 6.5 percent is still in place as presently billet price stood at Rs 64,000 per ton," he explained.

In addition, during FY07, all the stakeholders were agreed on a special procedure of sales tax on smelters and ship-breakers and accordingly some changes were made, which ultimately were in favour of smelters. As per that procedure smelters are paying sales tax @ Rs 3,200 per metric ton, while ship breakers are paying Rs 5,862 per ton.

The taxation authorities have already thrown a spanner in the shipbreaking industry by raising income tax from 1 percent to 5 percent, besides withdrawing the facility of deferred payment of sales tax while forcing this industry to pay the entire sales tax amount at the import stage.

Smelters on the other hand have got a benefit of 43 percent reduction in sales tax from Rs 5,600 per ton to Rs 3,200 per ton. This reduction translated into a staggering loss of Rs 9.60 billion annually to the national exchequer.

He has urged the FBR for some relief for the shipbeakers to enable the industry to compete in the world market. Sales tax on shipbreaking industry should be reduced to Rs 3,200 per ton, besides the restoration of deferred payment facility of sales tax through post-dated cheques which was withdrawn on in March, 2013, he demanded.

Source: Business Recorder. 2 September 2013

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