ISLAMABAD: Pakistan’s steel industry has strongly protested moving the sector from the FED to GST sales tax regime and warns the PTI government that this will have disastrous consequences for the industry and economy.
“The government will have to bear a revenue decrease of Rs50 billion per annum as loss on sales tax by this move. There has been no stake-holder consultation by the government and there remains no incentive to remain in the tax net after such a brash move by the government.”
Through a letter sent to the Senate Standing Committee on Finance, the local steel industry has informed that while steel units in the FATA and PATA areas enjoyed various tax incentives, the entire thought behind levying FED in GST mode on the steel industry was to ensure that output sales tax would be levied on units located in the areas.
This was a necessity because the government is unable to restrict the tax exempt goods within the area, creating unfair competition, price distortion and undercutting of the formal and documented industry players. As such, there was massive abuse of the law that allowed large quantities of tax-exempt goods to creep into markets across the country. The industry raised hue and cry over such foul practice and the FBR responded over the past 12 months to tighten administrative control and restrict the abuse of law to enable a level playing field in the industry.
With tightening administrative control, the steel sector in FATA/PATA moved their political muscle to get an outright exemption of sales tax by removing the entire sector from the FED mode in the recent budget announcement on June 11, 2021. All stakeholders including the PTI government, FBR and industry know that the government does not have the capacity to restrict tax exempt goods to the tribal areas as per law. In essence, by removing the steel sector from FED mode, the PTI government is creating an imbalance in the sector that will allow undocumented players to flourish at the expense of those that are paying full taxes, complying with quality standards and working towards enabling the Naya Pakistan Housing Scheme, infrastructure and housing projects.
“The current installed capacity in FATA has almost reached 1 million tons per annum whereas the consumption cannot be more than 180,000 tons per annum as per the population (approximately 5 Million) and national per capita consumption (35 Kgs) of the area. This clearly shows that many units have been set up to illegally use the tax incentive and provide tax free finished goods outside the tribal areas.”
“The government must understand that the major beneficiaries of such incentives are industrialists from outside FATA/PATA that have moved their industries to these tax-exempt areas in partnership with a few locals. Most of the labor is also from other provinces rather than up-skilling the local population. There is very little trickle down effect that justifies such tax exemptions.”
All major steel associations are appealing, cautioning and warning the PTI government to keep the steel industry in the FED mode to ensure maximum revenue generation, job creation, and fair competition within the industry.