LAHORE: Unregistered scrap dealers are dealing losses over $100 million to national exchequer annually right under the nose of Federal Board of Revenue (FBR) that seems to be in no mood of documenting the sector and make it pay taxes.
Annually, these dealers operating in the scrap markets of Misri Shah, Lahore, Sher Shah, Karachi, and other cities collect more than 2 million tons of indigenous steel scrap and sell it to the steel re-rolling and melting industry.
These scrap dealers that charge Rs50,000/ton on average yearly price of the scrap are evading 17 percent sales tax amounting Rs8,500/ton. The total tax evasion from the steel scrap is over Rs17 billion.
Mian Rehman Aziz Chan, Chairman Pakistan Steel Melters Association (PSMA) told The News that scrap price varied round the year. “For example it (scrap price) was Rs68,000 to Rs70,000/ton on Monday in Lahore market. However, if average price of Rs 50,000/ton is fixed for the whole year than the tax evaded by the steel scrap sellers will be over Rs17 billion or $100 million,” Chan said.
The FBR should register all the scrap dealers at the earliest to help the steel industry to gain input invoice, while it would also add to the national exchequer, he said.
He said the erstwhile regions of FATA/PATA were presently tax-free and steel melting furnaces there were exempt from Federal Excise Duty (FED) or income tax, while others across the country were paying Rs14,510/ton as FED in the mode of the sales tax. “The steel melting furnaces located in the formerly FATA/PATA region do not pay the said tax,” Chan said adding, “Under such circumstances our furnaces cannot be competitive from the ones in the formerly PATA/FATA region”. The FBR should end this discrimination of taxes from the same sector, said he.
He urged that in order to be competitive as compared to units located in FATA/PATA, the FBR should provide some relief to the steel industry working across the country. “In the other case such a system could be developed by the FBR that tax at the port is levied which should be paid by FATA/PATA and by units located in taxable areas. It should be non-refundable, remaining tax by the FBR may be received at this very point from the industry,” Chan said.
He said there were innumerable unregistered small furnaces working illegally in clusters across the Lahore Ring Road and these units were utilising B-2 electricity connections and were manufacturing ingots. “These unregistered units are producing the cheap products and dumping in the market thereby causing a huge loss to the national exchequer and industry and it deserves immediate attention of the government,” the PSMA official said.
Further, a number of units had declared themselves as composite units and were paying less tax, he said, adding for example if in case of re-rolling unit the same units have to pay Rs20-25 million in tax per month was paying only Rs2-2.5 million under the misdeclared composite unit status.
“The association suggests that any composite unit having less than 2 megawatt of electricity connection should not be treated as a composite steel unit in order to ensure revenue collection and avoid misdeclaration from such units.”
He said the steel industry was adversely affected with recent relief provided by the FBR to ship-breaking industry to the tune of 5 percent in RD (regulatory duty), 2 percent in income tax and 2 percent in additional custom duty. “The package has affected the steel-melting industry adversely. It is requested that some relief to this industry be also granted by FBR on urgent basis to hold its huge losses,” Chan said.
Further, he said the steel melting industry had been levied with FED in sales tax mode, adding, the industry was already paying sales tax on production before the submission of sales tax return at the import stage on the import of steel scrap, ferrous-alloys and on electricity.
“At the time of production we pay GST on our electricity bills and on all other consumable items in the process of production are already paid in its entirety. The industry pays almost the entire amount of FED (Sales Tax) before sales at production and before submission of sales tax return. So, it is absurd to pay further 10 percent sales tax under Section 8B (1) with every sales tax return,” the PSMA chairman said.
Chan said consumption of 800 units of electricity for manufacturing a ton of billet was approved by the FBR, which were reduced to700 units since June 2019. keeping in view the large furnaces only. “However, majority, almost more than 190, steel units have installed furnaces of around 5-10 ton capacity, while only around 10 big players have installed 25 ton capacity efficient furnaces.
Because over the years no fresh investment has been made in the steel melting sector and the efficiency of the old furnaces was decreasing with the passage of time.
Keeping in view the condition of the furnaces and the quality of scrap utilized, no less than 800 units of electricity are consumed. Similarly, the installed composite units (Steel Melting Furnaces & Re-Rolling Mills) previously were assessed at 930 units, which have been reduced to 810 by the FBR. This has resulted in huge losses to the industry.
The FBR should restore old electricity consumption assessment criteria or allow the units to opt with their choice of new or old assessment criteria, the PSMA chairman said.