Documented steel sector: PM urged to ‘rationalise’ turnover tax rate

ISLAMABAD: The documented steel sector has strongly recommended Prime Minister Shehbaz Sharif to rationalise turnover tax rate and increase the turnover tax adjustment period to five years to stabilise and boost exports of local steel industry.

In a communication to the prime minister on Tuesday, the steel industry informed that the local steel industry that is currently on the brink of closure and operating on very thin profit margins or incurring losses strongly suggest the government to take the following measures:

(i) There is need to abolish minimum tax or at least reduce its rate from 1.25 per cent to 0.25 per cent for steel manufacturers.

(ii) The carry forward period of minimum tax should be allowed for adjustment to five years again.

Last year, government levied super tax on large industries intended to stabilise the economic situation but at the same time, the step has penalised large/documented sector/who went into bigger scale and who have ability to go into exports — hence, inadvertently encouraging the non-formal/non-documented sectors.

The government’s timely support would help our industry to survive in this difficult time instead of falling apart or considering closure of operations.

Steel industry, which is the backbone of economy and which has most recently emerged as the 6th largest exporting sector, is currently under enormous pressure and fighting for sheer survival.

The acute shortage of raw material/scrap due to curbs on LCs, highest interest rates, and massive rupee devaluation are the factors responsible for situation. All these factors are beyond the control of our struggling industry. As a result, it is all set to incur forced losses (First half) or some fortunate might be able to survive on bare minimum margins.

Most of the units are operating on minimum capacities and some have shut down their operations.

Due to this situation, the Chinese investor – Century Steels, has put the installation work of machinery on the halt – waiting for better days to re-start.

In these extra ordinary situation, the high rate of regressive; unjustifiable Turnover Tax (on manufacturing) must be rationalised from 1.25 per cent to 0.25 per cent. The leading business Associations/ Councils have urged the government for reduction of turnover tax.

Last year, government reduced the carry forward minimum tax period from five years to three years. For the current financial year, the industry is set to perform poorly and would not be able to adjust carry forward turnover tax in three years’ time.

The next two to three years could be most critical for the industry so, the carry forward adjustment period of minimum tax should be allowed for five years. This would provide a breather to industry without any implications vis-a-vis IMF.

The purpose of introducing turnover tax was to bring those SMEs into the tax net who were deliberately declaring loses to evade taxes. Whereas on ground turnover tax is actually hitting the documented tax paying sectors who are audited by world class auditors. Especially, the steel sector cannot evade taxes because the productions could be cross checked through electricity units as well.

During the last 2/3 years, many steel companies have been diversifying into exports of non-ferrous metals (especially Copper; Aluminum) and most recently the iron and steel sector emerged as the 6th largest and fastest growing exporting industry.

Last year, exports of iron steel sector stood at around one billion USD. In the current scenario where industry is being crushed under enormous stress, this could badly erode the exporting ability of this sector.

Copyright Business Recorder, 2023