During the last budget, the steel melters and other manual rolling mills using steel ingots and c.c. billets produced by melters were allowed to pay Rs 300 + Rs 200 = Rs 500 per ton in sales tax. Although the steel melters have never paid the full sales tax which was due from them for the past many years, a new Chapter 12 and Rules were framed in the last budget which gave legitimacy to the illegal activities of a significant sector of the steel industry.
We had also requested last year before the budget that the government should not notify the proposed rules but we were told that the melters had promised to pay over a billion rupees under the new scheme as against only Rs l39 million that they have paid during 2003-2004.
We were asked to patient and that the department was looking for more revenues from the melters. In this respect, the Member (Sales Tax) has played an exemplary role in guiding the industry towards documentation. But we feel that more intensive efforts are to be made by the CBR in collecting the revenues due to the government.
It may be noted that we buy our raw material, ie steel billets from Pakistan Steel and our unit is fully documented and organised. We pay to the government an output tax of approx. Rs 5200 per ton whereas the steel melters are paying only Rs 500 per ton. Sir, is this fair or just?
What we are asking is that we should be given a level playingfield so that competition can be held on an equal basis.
The amount of sales tax of Rs 5200 per tonne is a huge amount which is being paid by us.
The result is that we cannot sell our finished product, namely, steel bars in the up-country market clue to the price difference of almost Rs 4000 per ton. And this is due to the anomaly in the sales tax regime and other fiscal measures.
The solution to the problem is very simple and we give below the various options;
That we also be allowed to pay a sum of Rs 500 per ton as allowed to the steel melters. This will bring in parity and equal competition.
That the same procedure and same rate be applied on the taxable value of the M.S. Products for all the sectors of the steel industry.
That our rate of 15% may kindly be reduced to about 50% sales tax so as to bring some parity to the sales tax paid by others.
Zero rate steel sector, which will bring in much needed growth and investment in the steel sector.
May we point out that the potential sales tax revenue that the government can get from the steel is sector is about Rs 13 billion.
Out of this the government collected only Rs 3.1 billion in 2003-2004 and about Rs 1.33 billion in the first six months of 2004-05. It will be seen that only about 25% to 30% revenue has been collected and the test of the tax has been evaded and not collected.
Hence, in order to create equality and parity in the industry and to bring in structural reforms in the industry, we recommend that the sales tax in the steel industry be zero rated. This will help the government to bring in structural reforms and also will contribute to the growth of the economy by bringing in investments that are very critically required in the economy.
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