Import of steel scrap sans GST, FED: FBR suffering huge revenue loss in erstwhile Fata, Pata

ISLAMABAD: The Federal Board of Revenue (FBR) is suffering huge revenue loss on account of import of steel scrap by companies located in the erstwhile Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata) without payment of sales tax and the Federal Excise Duty (FED), putting documented industry at a disadvantageous position.

Sources told Business Recorder Monday that the local steel industry had taken up taxation-related issues with the FBR including tariff anomalies.

The industry has informed the FBR that the Board is losing massive revenue as shell companies without manufacturing facilities in the erstwhile Fata/Pata area are importing meltable scrap without paying any sales tax (due to exemption) and selling the scrap in the local market.

A customs order needs to be issued to ensure that no scrap can be imported without submission of three months' electricity bill indicating the consumption of scrap and obtaining consumption certificate accordingly.

The FBR should look into the issue of double collection of sales tax on goods in stock as on 30th June 2019 due to regime change from special procedure to normal regime (pending since July 1st, 2019).

In order to improve production of graded steel i.e. compliant to the PSQCA standards, import of re-rollable material, which is intermediary good, is the major source of non-compliant steel, is currently subject to duties that are applicable on raw material.

The rollable material should attract custom duties and other taxes equitable to that of billets (intermediary good).

Ship plates which also are a source of producing non-compliant steel should also be discouraged by equating duties and tax equal to meltable scrap.

The domestic industry has suggested massive tariff rationalisation to provide fair competition and encourage documented/quality-compliant industry.

Due to changes in tariff in the past few years, re-rollable material (intermediate product) is currently enjoying tariff equivalent to the industry's primary raw material.

This has led to a loss of revenue for the FBR and disturbed the level-playing field in the steel industry.

By increasing total import tariff to 22 percent on re-rollable material (PCT 7204.4910) to make it equivalent to the domestic industry's comparable intermediate product, i.e. steel billets (PCT 7207), the FBR revenue will increase and balance will be restored in the industry.

Due to changes in tariff in the past few years, import tariffs on ships for demolition has been zero rated, whereas, meltable scrap is subject to 7-10 percent duty structure.

Moreover, ship breaking industry only pays 80 percent sales tax on ships whereas 100 percent sales tax is levied on meltable scrap at import stage.

This has led to a loss of revenue for the FBR and disturbed the level-playing field in the industry.

Ships for demolition (PCT 8908.0000) needs to have equivalent import tariff as meltable scrap and 100 percent sales tax should be levied at import stage to increase the FBR revenue and restore the balance in the industry.

The FBR has been informed that the Heavy Meltable Scrap (HMS), a primary raw material for the local steel industry, is subjected to total import duty of 10 percent, whereas, all the other primary raw materials are subjected to total import duty of seven percent.

The import tariff on HMS (PCT 7204.4990) needs to be reduced to equal that of other primary raw materials (PCT 7204.4100).

The industry has informed the FBR is currently not making much revenue because the downstream sector of the long steel industry is completely undocumented.

The major stumbling block is the 1.5 percent turnover tax on retailers/traders because their entire profit margins get wiped out by such a turnover tax.

The FBR revenue is being damaged since importers are bringing in second-hand intermediate and finished goods, which are then "mutilated" at port and cleared under reduced duty of re-rollable scrap.

This requires amendment SRO 250/2011 to stop mutilation of steel items.

The industry has further informed the FBR that the FBR revenue is being damaged since importers are bringing in second hand intermediate and finished goods, which are then "mutilated" at port and cleared under reduced duty of re-rollable scrap.

The local industry is witnessing little slowdown in demand during the month of December 2020 following increase in raw material prices.

In comparison from July 2019 to November 2019 last fiscal year, the same period of current fiscal year has witness increase in sales and production by more than 20 percent.

Copyright Business Recorder, 2020