Import of steel scrap: Govt has not yet taken any decision to slash taxes: PALSP

ISLAMABAD: Pakistan Association of Large Steel Producers (PALSP) said on Friday that the government has not yet taken any decision to slash duties and taxes on the import of steel scrap.

In a statement, PALSP said that it is suggesting the government to stabilise the current market situation by taking some supportive measures for some specific period.

Some of the measures could be removal of duties and taxes on raw material, reduction of sales tax on sales of rebars up to 10 percent and with levelised energy tariffs given to export sector as the increase in the cost of electricity has become unsustainable and to maintain exchange rate at the existing level.

It says that the surge in prices of steel bars is associated with three key factors: massive increase in prices of raw material in the international market, currency devaluation, and surge in prices of electricity. Currently domestic steel industry is providing steel at comparatively low prices as compared to other countries.

In last two months, continuous devaluation of the Pak rupee has been witnessed and it is expected to depreciate more. The dollar that was of Rs 157 in July is now standing on highest ever of Rs 170. This devaluation of rupee adds to landed import cost of all imported raw materials. The devaluation of currency always increases inflation.

Also, if the currency is devalued, it would send a negative signal to potential investors. The association is also of the view that power tariff in last one-year increased by 37 percent from Rs 12.88 in August 2020 to Rs 17.72 in August 2021.

The notification of increase of up to Rs 2.97 per unit in tariff for electricity consumers of ex-WAPDA distribution companies (Discos) with effect from October 1 is issued and the tariff is expected to increase by Rs 2.97 in October 2021 all over Pakistan.

This will result in additional burden of approximately Rs 4,000 on steel prices. The PALSP maintained that cheap electricity is imperative for the survival of industries who are totally reliant on electricity.

It says that government is trying to give an impression that it has given relief to the industry, which is not correct. The government has promulgated Third Amendment Ordinance, 2021 to amend certain tax laws in which the government reduced tax rate of imported scrap from 17 percent to 14 percent on import of steel scrap.

Meanwhile, for other steel industry including re-rollers, traders etc dealing with scrap, the sales tax will remain at 17 percent as before. Also, it will only affect the cash flow of the steel manufacturers but it will not affect the price as the input tax does not become the part of the cost of the product.

In the same Ordinance, the government had abolished further tax, which was imposed inadvertently. It was an anomaly, which the government has rectified and also it will only affect the price mechanism for un-registered customers and not the entire customers' base.

In the same ordinance, the minimum turnover rate for steel distributors, dealers, sub dealers, wholesalers, and retailers is reduced to 0.25 percent. This reduction will be beneficial for the government in documentation and will not have any impact for manufacturer or cost of production.

Copyright Business Recorder, 2021