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ISLAMABAD: The net margins of the listed companies in the steel sector shrunk during the last five years, negating the Federal Board of Revenue (FBR)’s claim of “targeted taxation” of the documented industry in the coming budget (2022-23).

In a communication to Miftah Ismail, minister for finance and revenue, on Friday, the documented steel sector has requested an immediate budget meeting with the minister before incorporating harsh measures in the next fiscal budget. The industry has referred to the annual audited accounts and reports available with the Pakistan Stock Exchange Limited.

According to the industry’s communication to Ismail, on average, rebar manufacturers in Pakistan are making only five per cent net profit margins as compared to over 15 per cent for cement. Also, leading players of the long steel sector declared losses during FY 2019-2020.

The annual statements filed with the Pakistan Stock Exchange revealed that the steel sector has made six per cent net profit margin on average for the period 9M FY22 (Steel companies listed on PSX). This is not windfall profit. Moreover, the unprecedented rise in the cost of energy and finance has wiped out the current profits of the steelmakers.

Sectors earning ‘windfall’ profits: FBR envisages ‘targeted’ taxation

The increasing income tax will burden documented steel companies that are already paying heavy taxes and increase the incentive for tax evasion. The import duties and sales tax already constitute over 20 per cent of the cost of steel in Pakistan – increasing taxes will make steel more expensive for consumers and disrupt private and public construction projects. The burdening an already struggling industry will cause closure of factories, loss of jobs, reduction of tax revenue and further weaken business sentiment.

Ismail has been informed that the steel sector has noticed with great concern some of the reports that the government is preparing to impose “targeted taxation” under the IMF dictates on the struggling long steel sector. According to the reports, the government is all set to increase different kinds of taxes on the steel sector under the premise that the steel sector has been making “windfall profits”. This perception is misleading and contrary to the ground reality.

According to the PSX data of listed companies in the long steel sector, the net margins of the steel sector shrunk during the last five years, and leading players declared losses during FY 2019-2020. Due to low margins, the banks are reluctant to extend lending to the steel sector. The steel sector came out of crisis during the years 2020-21 and 2021-22 for a brief span of time. However, the steel sector has once again landed into crisis after the drastic increase in interest rates during the first half of FY 2022 by the SBP.

The Pakistan Association of Large Steel Producers (PALSP) on behalf of the long steel industry suggests that instead of taking the measure of targeted taxation, the government can enhance its revenue manifolds by increasing the tax net, removing anomalies, addressing maladministration and covering the revenue leakages, the industry added.

Copyright Business Recorder, 2022

Comments

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SAMIR SARDANA May 28, 2022 05:51pm
All steel input costs have exploded Besides integrated steel plants - other steel plants have suffered losses and declining margins,all over the world If a steel unit is importing coal and iron,then it is basically doomed - unless it has the scale of POSCO and Nippon Steel - and the import duty protection, on steel imports, by Nippon and Seoul. PRC has also shuttered steel units - on the pretext of pollution - but the REAL reason is imported coal and iron from Aussie. TO IMPORT STEEL IS CHEAPER THAN LOCAL STEEL for Pakistan THE ONLY REASON FOR PAKISTAN TO MAKE STEEL is that - THE USD SPENT ON IMPORTED STEEL IS "MORE THAN" THE VALUE OF IMPORTED OIL AND COAL AND IRON (TO MAKE THE STEEL IN PAKISTAN) - TO ENSURE THAT THE CAD AND PKR DOES NOT COLLAPSE.dindooohindoo
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