KARACHI:
In a typical rent-seeking economy like Pakistan, it is not unusual for vested
interests to lobby against each other to extract maximum tax benefits from the
government at the cost of fair competition. And the steel industry is no
exception.
While
steel manufacturers insist that the government must revise tax rates for the
ship-breaking industry in order to ensure a level playing field for all
stakeholders, shipbreakers contend that they already operate under tight
regulatory and tax structures.
Raw
material for steel bars is obtained primarily in two forms – ship plates that
are supplied by shipbreakers, and steel billets, which are produced by steel
melters.
“The
government should impose federal excise duty on ship plates and ship items with
immediate effect at the rate of at least Rs12,000 per ton in order to ensure a
level playing field in the steel industry,” the owner of a private-sector steel
mill told The Express Tribune in a recent interview, but requested anonymity.
Currently,
the market price of steel billets is Rs81,000-82,000 per ton while ship plates
are selling at Rs67,000-68,000 per ton.
Steel
melters attribute the gap in the costs of the two products to the incentives
that the ship-breaking industry enjoys, a claim that is rejected vehemently by
the producers of ship plates.
Steel
bars are heavily used in the construction industry. Although the quality of the
steel melters’ product is markedly better than the steel bars produced from
ship plates, the fact remains that the end price of steel bars is often the
single most important factor behind total sales volumes.
Industry
experts say almost 80% of the total market of steel bars consists of the retail
segment. These retail buyers are less concerned with the quality of steel bars,
as they buy on average only five to six tons of the product for the
construction of single and double-storey houses.
In
contrast, steel bars produced from steel billets are used mostly in high-rises.
This hurts the business of steel melters, as their output is costlier by around
Rs12,000-Rs15,000 per ton.
As
per an agreement signed by the steel industry’s stakeholders in 2000, the price
difference between the two products should not be more than Rs1,200 per ton.
The agreement used customs and other kinds of duties to create equity among
different sectors of the steel industry.
However,
steel melters claim that the ship-breaking industry has received tax benefits
to the tune of Rs10 billion during the last five years in the form of
relaxation in federal excise duty and withholding tax.
“The
matter can be resolved by a policy statement and notification of a committee to
determine duties and taxes so that the difference between ship plates and steel
billets does not exceed Rs2,000 to Rs3,000 per ton at any given time,” the
steel mill owner said.
Reacting
to the demand of the imposition of federal excise duty on ship plates, Pakistan
Ship-breakers Association Chairman Dewan Rizwan Farooqui said his industry is
already paying approximately Rs1 billion every month in taxes.
“We
are a labour-intensive industry that consumes little water or electricity.
While scrap importers pay income tax at the rate of 1% only, we are subjected
to the tax rate of 5%. How else are we supposed to contribute to the national
kitty?” he said while speaking to The Express Tribune.
According
to Farooqui, ship-breakers produce a little less than a million tons of steel
per year while the output of steel melters is about four million tons per
annum.
However,
steel melters insist that while the share of shipbreakers used to be 20% back
in the day, the price difference has resulted in ship-breakers controlling more
than 60% of market share in recent years.
Source: The Express Tribune. 11 November 2013
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