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ISLAMABAD: The documented steel sector has asked the Federal Board of Revenue (FBR) to conduct audit of the income tax contributions of real estate development sector after legalisation of their undeclared wealth under the amnesty scheme.

Pakistan Association of Large Steel Producers (PALSP) Monday informed the FBR that with some of the highest net profit and return on equity margins across industries, the need of the hour is government regulation to fix the pricing of various categories of real estate projects whether it be residential or commercial development.

Since there is very little transparency in the real estate development sector, the government needs to audit the income tax contribution of such lucrative ventures.

After a huge amnesty given to the builders and developers to whiten the black money, further oversight from the government needs to ensure that un-accounted and un-declared wealth (black money) is not being used moving forward.

The documented steel sector said that the Naya Pakistan Housing Scheme (NPHS) and the set of incentives given to the construction industry were visionary initiatives taken by the prime minister to provide affordable housing and churn the economy.

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However, the biggest barrier to affordable housing is the real estate builders and developers themselves.

Prices of homes, apartments and office spaces - particularly in urban areas, have increased significantly over the past few years due to an increasing appetite of real estate developers for high margins, it said.

The year 2021 witnessed extraordinary increase in the price of rebars world-wide, which has been as a result of shortage of raw material/scrap due to Covid-19-related factors as well as due to increase in demand of steel globally.

However, despite the fact that the cost of input increased drastically, still, the steel sector of Pakistan has been providing rebars at a price, which is less or in some cases equal to countries such as China, Turkey, US, UK, and the CIS states, who are leading steel producers.

The steel sector has been absorbing the increasing cost of inputs by reducing its net margins that hover around four to five percent recently.

In the FYs 2018-2020, major players declared losses and many smaller ones went out of business.

The year 2021 provided little bit relief due to increase in demand of steel; however, still the steel sector is fighting for survival.

The PALSP represents documented; transparent steel sector comprising most credible players of steel sector.

Over the period ranging from August 2020 to August 2021, scrap prices (C&F Karachi) had shot up from USD 299 to USD 530, accounting for a 79 percent increase in raw material cost.

Electricity cost, a major input for steel producers, over the same period also jumped 37 percent from PKR 13 to PKR 20.

Similarly, RLNG has increased by 90 percent over the past year and ferro alloys, also a raw material used for steel making, has jumped by 58 percent.

All such factors have forced steel manufacturers world over to increase prices, while absorbing some of the impact that is apparent in the meager industry margins of 4-5 percent.

However, the good news is that the sudden hike of raw material prices is a sort of bubble, created by supply chain disruptions that create shortage of metal scrap in the global market.

As global trade starts to recover and make its way back to a normal level of efficiency, the supply side of the raw material could once again come back to pre-Covid levels, resulting in a normalisation of prices.

Due to the fragmented and highly competitive nature of the steel industry in Pakistan, having over 400 steel units re-rolling primarily steel bars, the normalisation of raw material prices will automatically be translated and domestic steel prices will comedown, it maintained.

Looking to the future, if steel demand is to grow at eight percent per year, Pakistan will need to double steel production in the next 10 years in order to keep pace with a growing economy. However, with such meager profitability and an array of tariff and tax anomalies, who would like to invest in the steel sector? The government must create a long-term roadmap that provides a facilitating and progressive environment for investment in the steel sector, which is the backbone of our country's economy, the steel sector added.

Copyright Business Recorder, 2021

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