Budget proposals presented: Steel melting sector highlights challenges

LAHORE: The country’s steel melting industry is in a state of extreme distress as the banking sector remains incapable of allowing opening of Letters of Credit (LCs), leading to a severe shortage of imported scrap that is used as essential raw material in melting furnaces.

This has been mentioned in the budget proposals for the year 2023-24 presented by the Pakistan Steel Melters Association (PSMA) to the Federal Board of Revenue (FBR) and the relevant ministers.

In the proposals, the critical problems faced by the steel melting industry have been highlighted and also the possible solutions to them.

PSMA calls for changes in tax rates for scrap dealers

In their budget proposals the PSMA has argued that local scrap is of low quality and requires additional electricity for the melting process; so the steel industry is largely dependent on imported scrap.

However, in the crisis-like situation, the industry has been left with no other option but to use local scrap only.

Under the circumstances, the taxation measures for temporary reduction of withholding tax to 0.25 percent on scrap supplies and 1 percent extra sales tax on supply from non-registered scrap dealers are immediately required to make the industry viable. Furthermore, cash purchases should be allowed from unregistered scrap dealers till the time of opening of LCs.

The documented steel melters face practical problems in dealing with undocumented local scrap suppliers/ dealers, who are not registered with FBR due to the very high 9.5 percent withholding tax on supplies and levy of 5 percent extra sales tax.

The PSMA has also asked the government to strictly check the smuggling of a huge quantity of cheap long steel bars from Iran, which are being used in the construction of buildings.

Copyright Business Recorder, 2023