ISLAMABAD: The Federal Board of Revenue (FBR) should take immediate measures to check massive mis-declaration of steel products at the import stage, causing revenue loss to the tune of billions to the national exchequer.
According to a research report prepared by the documented steel sector with the help of experts, large-scale mis-declaration of brand-new primary steel in the garb of scrap has put documented sector at a disadvantageous position and also causing huge revenue loss in billions. This practice is creating unfair competition and a wedge between the compliant and taxpaying documented steel sector producing world-class steel versus those who use deviant practices like evading taxes and produce/sell substandard steel hence creating infrastructural risk for the future generations.
Due to loopholes in laws in the import policy order as well as customs laws, the ongoing practice of mutilation of brand-new steel at the ports poses the biggest threat to the documented sector and is further disrupting competition and putting the documented sector at huge disadvantage. If this situation persists, experts apprehended, this will discourage future investment in the steel sector.
On average 500,000 tons to one million ton brand new steel is being mis-reported as scrap annually, report claimed.
The estimated revenue loss to the exchequer may be over Rs 10-15 billion annually. These findings correlate with the recent attempt by the Customs intelligence department to block the import of new products that are being declared as scrap.
The current practice of mis-declaration is costing Pakistan a huge revenue loss, economic activity and job losses. Taking measures to curb this mis-declaration, the government must act to stop this abuse and protect the economy of Pakistan from getting the harmful impact of this activity.
An analysis of the recent trade data on the imports of scrap and other steel items revealed that there is an overreporting of steel scrap imports when compared with statistics disclosed by the scrap exporting countries to Pakistan. It was found that Pakistan declares additional 1 million metric ton (MT) of steel scrap, on average for the last seven years, which the exporting countries do not declare as scrap and instead declare those products as new products.
In the year 2019, Pakistan reported 4.02 million metric ton (MT) of steel scrap import, however, the exporting countries of steel scrap to Pakistan reported an export of 3.13 million MT of steel scrap export. Thereby showing a discrepancy of almost one million MT. Most of the discrepancy has been recorded in the data from UAE, Afghanistan and US, report said.
The report further revealed that almost half of the average is explained by difference in reported values of non-scrap and non-rollable flat products. Interestingly there was not much of a reporting difference in case of flat rolled products. In case of non-scrap and non rollable products, the average difference of Pakistan reported and exporting country reported figures show a difference of almost 500,000 MT.
The report stated that it is evident that these new products, which Pakistan under-reports in this category, are being classified as scrap, which as explained above is being over-reported by the authorities.
According to the data analysis by the documented sector, the estimation based on FY 2019-20 figures shows that Pakistan's declared imports of iron and steel (other than scrap and flat rolled products) were little less than 300,000 MT and valued at $167 million or Rs 26.5 billion. Keeping in view the effective duty rate, the revenue collected at the import stage was estimated at over Rs 3 to 3.5 billion including customs duty collection
of almost Rs 1 billion, additional customs duty (ACD) collection of almost 500 million and regulatory duty (RD) collection of a little less than Rs 2 billion. The estimated sales tax and withholding tax collected at the import stage could also be at around Rs 3 billion. In aggregate terms, the total tax collection at import stage on these products is estimated at Rs 6-7 billion. This means per MT duty collection is between Rs 20,000 to Rs25,000.
As per extrapolated estimation based on current figures and as per the mentioned amount of mis-declaration at almost 1 million MT, a simple back of the envelope and conservative extrapolation would give us a total revenue loss at around Rs 10-15 billion annually only on a few HS codes, report added.
Copyright Business Recorder, 2021