Govt asked to withdraw tax exemption for Fata, Pata

ISLAMABAD: Pakistan’s industries including steel and ghee/cooking oil have warned the government for the closure of their units if the government granted another extension of tax exemption for industries located in erstwhile Fata/Pata in the coming budget.

They raised the question that the consumption of steel per capita peaked at 800kg per person compared to 30-35kg in the remaining whole country. The tax exemption, they said, was misused massively having a difference of Rs45,000 per ton in steel in Fata/Pata and remaining settled areas of Pakistan. They were of the view that the check posts were established on paper only making their tax-paying industries unviable.

“Massive misuse of exemptions since 2018 has devastated steel, ghee industry as well as many other industries resulting in revenue hit of hundreds of billions to nation’s exchequer, which must end now,” the representatives of industries including steel, ghee/cooking oil said and appealed the govt not to play havoc with industry in rest of the country by extending these unfair tax holiday to Fata/Pata in a news conference addressed here on Monday.

The representatives of Pakistan Association of Large Steel Producers, Pakistan Vanaspati Manufacturers Association, Pakistan Steel Line Pipe Industry Association, Aisha Steel and International Steel Industries (ISL) were present on the occasion.

At the time of the merger of the erstwhile Fata/Pata in KPK in 2018, tax exemptions were given to industry in erstwhile Fata/Pata/ also called the Newly Merged Districts (NMDs) for 5 years and the facility was further extended for another one year till June 30, 2024.

The beneficiaries with the help of political forces are active to get extension of these exemptions. ‘Industry stated that Fata/Pata tax exemptions policy is actually advocated and supported by powerful political elements as well as those trade bodies that have stakes in Fata/Pata and own steel and ghee units in these areas. These elements are advocating for further extension solely for their personal vested interests; with no relief intended for the common man of NMDs.

The representatives of local industry stated that if the government under political pressure wants to reward opportunists who are evading taxes by misusing Fata/Pata tax exemptions, this unfortunately will lead to permanent closure of steel, ghee and other linked industries causing unemployment as well as massive revenue loss.

According to the representative of different industry, the disastrous policy of Fata/Pata tax exemptions has already wiped out a lot of domestic steel & ghee industry and the industry located in Punjab & KPK is the worst hit. It is very unfortunate that more than 60% industry of Khyber Pakhtunkhwa located in Hattar Industrial Estate, Hayatabad Industrial Estate and Gadoon Industrial Estate have already been closed.

In last five years’ tens of steel units in Hattar, Gadoon and Hayatabad witnessed closure including one of the biggest steel mill that was Chinese JV in Gadoon. The steel unit of Chinese, the first private sector investment in Rashakai Economic Zone, has been put on the hold due to worst situation created due to unfair tax exemptions in the same area where they are located. Several industrial units of Islamabad, Gujranwala and Lahore are also shutting down.

It was argued that due to weak administrative controls, perpetrators taken advantage of the tax incentives and abused the law by selling tax-free goods in settled areas that undercuts the tax paying industry. These exemptions were so badly misused that around 92% of the steel and ghee produced in NMDs is smuggled to the settled areas without payment of sales tax. Also, the raw material is being imported without payment of taxes in the name of units located in NMDs. Surprisingly, the actual steel consumption of steel in NMDs is only 2% of Pakistan, whereas, the annual production of Fata/Pata is several time bigger than the per capita requirement. The revenue hit of different industries amounts to the tune of hundreds of billions of rupees.

The tax exemption of Rs40 to 50 thousand per ton steel for Fata/Pata is playing havoc to local steel industry (almost 25% price difference) making them unviable to operate and compete with significant cost differential.

It was highlighted that the goods produced in the non-taxed areas are blatantly sold in rest of the country/taxed areas without the levy of sales tax. These exemptions are pampering a very small fraction of 2% of industry in Fata/Pata at the cost of devastation to 98% local industry. Due unfair & discriminatory policy of Fata/Pata the local industry has crippled during last six years.

Actually, government is providing these tax incentives as weapon to these tax free factories to go and kill tax paying units in the tax paying areas. This is a great tragedy with the investor of this country!

It was highlighted that Fata/Pata exemptions establish a dual discriminatory two-tier tax system in Pakistan where tax compliant industry is being deliberated being slaughtered to reward unregulated/tax evasive industry in Fata/Pata. Government must ensure fair and transparent tax system that applies uniformly across all regions of the country.

Industry demanded the government for not giving any further extension in tax exemptions to the steel and ghee units in Fata/Pata. Industry also necessitated for recovery of the tax evaded and those involved in the menace may be taken to task.

Industry also suggested the government to instead of extending tax exemptions facility govt may pay cash to NMDs industrial units. This will help to plug government revenue and to avoid closure of industry in rest of the country.