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ISLAMABAD: The Federal Board of Revenue (FBR) will have major chunk of revenue on steel bars, following surge in its prices and mainly due to massive increase in prices of raw materials in the international market, currency devaluation, increase in discount rate, and surge in prices of utilities/petroleum products.

According to a communication of the Pakistan Association of Large Steel Producers (PALSP) to the FBR Thursday, the unprecedented increase in the cost of steel scrap globally, steep increase in the freight charges, massive devaluation of the PKR, drastically increasing cost of gas, electricity and fuel are the key factors responsible for increase in the cost of construction bars in Pakistan.

The price of scrap increased from $300 to $560 the price of gas increased by 200 percent, power by 70-80 percent, PKR devalued by 42 percent, and the cargo charges increased 100 percent, it said.

The key beneficiary of increase in prices of steel is the FBR in the shape of custom duty on primary raw material 7-10 percent; RD 5percent; 17percent sales tax and 1.25percent turnover tax or 35percent tax on income. The FBR is getting a major chunk out of increase in the price of steel. Out of price of Rs185,000 to Rs190,000 per ton, a major amount of Rs43,800 per ton is going in different taxes. When prices were Rs100,000 per ton, this tax was Rs23,076 per ton.

The taxes are progressive on the cost and when price increase, the incidence of taxes increase. The industry on average is working still at 3-4percent profit margin. The main benefit of price increase goes to the government. In this situation, the industry was expecting that the government will reduce taxes to provide at least some relief to the end consumer, the association maintained.

For a considerable time, the steel industry absorbed the impact of all these factors; however, later on this was to be passed onto the end consumer. Till October 21, the steel industry has been selling rebars at price lower than China, Turkey, and the CIS state. Right now the prices in Pakistan are comparable to these countries. After scrap, electricity is one of the key cost inputs in steel producing and it is extremely costlier in Pakistan in comparison to BD, India and China.

The latest decision of the State Bank of Pakistan has added the last straw on the back of struggling industry by increasing the discount rate to 8.75 percent. After facing deep crisis for two years, (FY 2018-2019 and 2019-2020), the steel sector hardly came out of crisis-like situation only recently as a result of increase in demand of steel in the domestic market.

In the wake of continuous spiraling of scrap metals in international market is translated into surge in the rates of steel in the domestic market. The scrap prices are on bullish trend owing to a pickup in demand after the economies began to operate in full swing in keeping with the easing of coronavirus restrictions, driving up the price of scrap steel in global market, the association added.

Copyright Business Recorder, 2022

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