Steel units in former FATA, PATA: PALSP urges PM to reject tax relief restoration

ISLAMABAD: The Pakistan Association of Large Steel Producers (PALSP) on Friday urged Prime Minister Shehbaz Sharif to reject proposals for restoring tax exemptions to steel units in former FATA and PATA, warning the move would hurt the formal steel sector and undermine efforts to document the economy.

In a letter addressed to the PM – copies of which were also sent to the finance minister, minister for inter-provincial coordination, adviser to the prime minister on political and public affairs, and the chairman of the Federal Board of Revenue (FBR) – the association warned that these exemptions have historically distorted market competition, inflicted economic harm on compliant manufacturers in settled areas, and undermined efforts to formalise the economy.

In its letter, a copy of the letter is available with Business Recorder, the PALSP cautioned that continuing the tax breaks would further weaken the position of tax-paying steel manufacturers, already under pressure from subsidised competition, and threaten the government’s broader goals of fiscal reform and industrial revival.

APC rejects imposition of taxes on erstwhile Fata/Pata

The tax exemptions were initially introduced as a relief measure for conflict-affected areas in the former Federally and Provincially Administered Tribal Areas.

These included waivers on income tax, sales tax, customs duties on plant and machinery imports, and withholding taxes. However, PALSP contended that these measures were extended far beyond their original intent and have been widely misused.

“Instead of fostering regional development, these exemptions became a tool for unfair competition, encouraging non-compliance and destabilising the formal economy,” said the letter.

Goods produced in tax-free zones were reportedly sold in settled markets without paying due taxes, creating an uneven playing field for documented producers.

From 2018 to 2024, the association claimed, the tax disparity led to the near-collapse of documented steel units in key industrial centres including Hattar, Islamabad, Gujranwala, Faisalabad, and Lahore.

In June 2024 alone, 16 units in Hattar and eight in Islamabad shut down, while several others in Gadoon and Hayatabad suspended operations – a trend the association directly linked to tax-exempt competition from ex-FATA/PATA.

The closures also had broader economic repercussions, with PALSP noting that the country’s first Chinese private-sector investment in the steel sector – planned at the Rashakai Special Economic Zone – was put on hold, as sponsors reportedly raised concerns with the prime minister over the tax exemptions granted to units in the former FATA and PATA regions.

The project’s sponsors, according to PALSP, raised concerns with the prime minister about the “inordinate exemptions” granted to producers in former FATA/PATA, calling them detrimental to investor confidence.

The association said thousands of formal jobs were lost due to factory closures, while units in exempted areas made “huge profits” without contributing to the national exchequer or to local welfare initiatives.

Over the past seven years, tax exemptions valued at more than Rs500 billion have been granted to steel units in these regions, PALSP stated.

Despite the substantial concessions, it claimed, not a single rupee had been spent on welfare or development for the people of those areas. “Instead, the benefits accrued solely to industrialists, creating unhealthy competition and suffocating tax-paying enterprises.”

The 2025-26 federal budget initiated a phased withdrawal of the exemptions, beginning with the imposition of a 10 per cent sales tax on steel products from July 2025.

Copyright Business Recorder, 2025