Lack of clarity in GST rules, exemption mechanism: PALSP says unable to supply steel to Gwadar Free Zone

ISLAMABAD: The domestic steel industry is unable to supply steel to the Gwadar Free Zone and other mega projects due to non-clarity in sales tax rules and absence of proper exemption mechanism in the sales tax law.

Pakistan Association of Large Steel Producers (PALSP) has approached the relevant authorities including the FBR and have recorded industry’s concerns regarding the Sales Tax Rules, 2006 and Chapter IV-Apportionment of Input Sales Tax, sub rule (1) and sub rule (2).

The domestic steel industry of the country is unable to supply steel to the Gwadar Free Zone/which also includes the under-construction Gwadar Airport, Gwadar Port as well as other similar exempted mega projects due to non-clarity in sales tax rules and due to absence of proper mechanism in the Sales Tax rules.

The local steel industry produces world class steel and has surplus capacity to supply steel to these projects. However, the domestic steel industry is unable to avail the benefit of the exemption of general sales tax (GST) for supplies of steel to these projects.

According to the sub rule (1) of Chapter IV, the Sales Tax Rules totally disallow adjustment of sales paid at input stage against any other supply.

Also, the sub rule 2 of Chapter IV which says that manufacturer shall not be entitled to adjust the input sales to the extent of exempted sales tax amount under this law, in any other supplies, which is contrary to the law as well as unjustified.

The PALSP has raised concerns regarding the relevant rule which interestingly aims at punishing the manufacturer and benefits the buyer only. Practically the sales tax input amount equal to exempted amount is dis-allowed under this rule. As a result, the manufacture is left with no choice to recover the amount of sales tax paid. So the government must rectify such rules which instead of benefiting make hassle for the local industry.

The government gives exemptions to the Special Economic Zones (SEZs), Gwadar projects under CPEC, Export Processing Zones (EPZs), and other big government projects with the intension to give priority to domestic industry for supplying world class materials that are available surplus within country. The aim was to create more jobs for our people, expansion of domestic industry’s capacity and more investment.

But on ground, the reality is totally different. The contractor of the Gwadar Free Zones is not engaging the local steel companies to get supplies of steel from the domestic steel industry. They are getting imported material by completely ignoring Pakistan’s local steel industry that has ample capacity for producing world-class steel. The local industry believes that the import of finished steel to the exempted mega projects is being done to great detriment of the local industry. This is an alarming situation and it amounts to exporting our jobs to other countries.

The PALSP urges the government to rectify the rules and take some urgent measures to enable the local steel industry to supply steel to such tax exempted projects to ensure the domestic industry benefits from these mega projects.

Copyright Business Recorder, 2022