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ISLAMABAD: The Pakistan Association of Large Steel Producers (PALSP) has raised serious concerns regarding the misuse of sales tax exemptions granted to manufacturers in the newly merged districts (NMDs) of Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata).

In a letter addressed to Finance Minister Ishaq Dar here on Wednesday, the PALSP highlighted the alarming extent of tax evasion in the long steel industry alone, estimating a staggering evasion of approximately Rs 150 billion over the course of five years.

Under the Finance Act 2018, sales tax exemptions were granted only for goods manufactured and consumed within the NMDs for a period of five years.

The intention behind this exemption was to provide relief to the people of NMDs during their transition into the documented economy until June 30, 2023. However, the PALSP has discovered widespread misuse of these exemptions by opportunistic individuals who do not belong to the NMDs but have formed partnerships or employed NMD representatives in various sectors, including the long steel industry, flat steel industry, ghee industry, and pipe manufacturing, among others.

Saqib Riaz, Chairman PALSP, expressed concern over the situation, stating, the misuse of sales tax exemptions in the NMDs has resulted in a significant loss for the national exchequer and has unfairly advantaged a select group of manufacturers.

This not only undermines the principles of fair competition but also hampers the growth and development of domestic steel producers. Over the span of five years, more than US$1 billion has been allocated to these manufacturers, favoring their interests while disregarding the overall impact on the economy.

A startling revelation from the long steel industry alone showcases the severity of the issue. The steel industry in NMDs, with the sanctioned load from Pesco/Tesco, has the capacity to produce 944,851 tons of steel, accounting for approximately 25 percent of Pakistan's total steel consumption. Surprisingly, the actual steel consumption within the NMDs is a mere two percent of Pakistan's total steel consumption, indicating that around 92 percent of the steel produced in NMDs is being smuggled to settled areas without the payment of sales tax.

The industry has estimated that this rampant tax evasion has resulted in an annual loss of Rs 30.61 billion to the national exchequer, and an alarming total of approximately Rs 150 billion over a span of five years in the long steel industry alone.

The extent of recovery required in the remaining sectors is projected to be even more substantial, amounting to hundreds of billions of rupees. Additionally, it is important to note that the supply of electricity to steel and ghee industries in NMDs was not exempt from sales tax, further adding to the recoverable amount, which runs into billions.

The PALSP chairman further emphasised the need for immediate action, stating it is crucial that the value of this tax evasion is ascertained and recovered promptly. The funds recovered can be utilized for the betterment of the nation, including investment in infrastructure, technology, and education, to promote sustainable economic growth.

The industry has also urged the Finance Minister to take immediate action to ascertain the value of this tax evasion and ensure its recovery in the interest of the national exchequer.

Disturbingly, the PALSP’s investigation has revealed that efforts are being made by various influential owners of steel and ghee mills in the NMDs who are lobbying for the retrospective waiver of this recoverable tax solely for their personal vested interests, disregarding the welfare of the common people in the NMDs.

The industry remains committed to combating tax evasion and promoting a fair and transparent business environment in Pakistan's steel industry, it added.

Copyright Business Recorder, 2023

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