Erstwhile tribal areas: Steel units plan shutdown against FED removal plan

ISLAMABAD: Large steel producers and documented steel plants are planning to shutdown their operations and go for a hunger strike against government policy of removal of 17 percent Federal Excise Duty (FED) for erstwhile tribal areas in the budget (2021-22). Industry sources told Business Recorder that the removal of FED/sales tax on the steel units operating in erstwhile Fata/Pata would hurt domestic investment in the steel sector, but Chinese investors are also concerned about the future prospects of their investments.

The representatives of two Chinese companies (steel sector) along with the domestic steel industry also met with the Federal Minister for Science and Technology, Senator Shibli Faraz, and expressed their concerns about the sudden change in the government policy.

According to the experts, the facility of exemption is already being misused by the Fata/Pata steel units as all of their imports of raw materials are already exempted from sales tax.

The evidence of misuse revealed there is copy of FIR against a steel unit, who had imported steel raw materials and had given bank cheques as guarantees as per law, which were to be released on production of in-house consumption of imported raw materials.

When no such consumption certificate from concerned LTU/RTO was produced before custom office, Karachi, the investigation was made and it was found that the same unit which had imported sales tax free raw materials, has only land and no plant and machinery was installed there.

The imported raw material was not available at its premises and all had been sold in the open market.

Hence, the FIR was lodged against the owner.

There is copy of a show cause notice issued by the concerned tax office of FBR where the steel unit failed to discharge its tax liability.

The unit was confronted with query to produce taxes paid or detail of sales made in the tribal areas.

But no convincing reply was received.

To assess the production data and sales, the officer has to get power bills from “TESCO” to establish pilferage of taxes and its extent.

Detail showed that the steel industry would be required to pay additional tax of Rs22,000 which will make them unviable, in comparison to steel units operating in tribal areas.

The data also revealed a huge quantity of scrap of 500,000 tons imported by steel units in Fata/Pata in comparison to a fraction of steel produced which is around 100,000 tons.

These evidences clearly establish the fact that the tax-free facility given to Fata/Pata is being massively misused and all such tax-free materials are being sold in tax areas and such activity is damaging the steel units who are paying taxes to the government.

There is an immediate need for the reversal of the federal budget proposal suggesting removal of FED on units operating in Fata/Pata.

As an alternate measure, the FBR should implement a system that full taxes to be recovered from steel units of Fata/Pata like other units and refunds to be made by the Federal Board of Revenue, once each units gives complete detail of its finished goods sales, confirming that goods were sold within Fata/Pata are and not in tax area as per SRO 96 of 2021.

The government’s failure to stop the flood of tax-free imports will result in closure of steel industry and no further investment will be made in the steel sector, which shall be a huge national loss, they added.

Copyright Business Recorder, 2021