Exemption of local scrap from sales tax: Delay in implementation causing over Rs 5bn revenue loss per month

ISLAMABAD: The delay in implementation of a key budgetary measure (2024-25) to exempt local scrap from sales tax has resulted in the practice of flying invoices, causing revenue loss of over Rs 5 billion per month.

In a communication to Senator Saleem Mandviwalla, Chairman Senate’s Standing Committee on Finance, Pakistan Association of Large Steel Producers have highlighted inordinate delays in resolving critical issues of steel industry resulting in huge revenue loss to the national kitty.

Pakistan Association of Large Steel Producers (PALSP) is struggling and knocking every door for the resolution of the most critical issues of the steel industry. However, due to inordinate delays on the part of the concerned authorities, not only steel industry is bleeding but also the government is losing billions and billions in revenue.

As a result of PALSP’s struggle spread at over one year, the government took excellent decision through budgetary amendment and exempted the local scrap from levy of sale tax. The amendment was proposed by the steel sector to curb the menace of flying invoices in steel sector. The expected benefit of the said amendment for the national exchequer is to net an additional revenue of Rs 40 to Rs 50 billion annually. As a result of the inordinate delay in enforcement of this budgetary decision the practice of flying invoices is still not under control and government is losing nearly over 5 billion per month.

The documented steel sector has also highlighted an enabling amendment made in Export Facilitation Scheme- (Draft Amendments SRO 1069 (I)/2024). As a result of association’s working/ struggle of 20 months with FBR the amendment in EFS rules to exclude value of wastage/iron and steel remeltable scrap from value of input goods for value addition purpose was issued by FBR vide SRO1069(I)/2024. However, it was disappointing that the draft or the proposed amendments were not in line with the protracted discussions held between steel industry and FBR/Customs authorities.

The leading players of steel industry players have diversified into exports of copper to China and this segment has emerged as the 5th largest exporting sector in few years. Unfortunately, due to long delays in resolving this issue, exports of copper crashed last year from US$1,113 million in 2022-23 to US$713 million in 2023-24 (Massive 36% reduction in just one year). In case of better facilitation; fast pace resolution of irritants, exports of copper to China could be increased to several billion US$ in a short span of time. This is an opportunity for our country to boost exports of copper to China. If this situation continues due to indecision; delays on the part of FBR authorities, this will result in loss of a big exporting opportunity for the country which is badly in need of increasing exports.

The steel industry has requested the committee to summon all relevant authorities/departments/ministries for the earliest resolution of the said issue. This will not only help the struggling steel industry but would also help in massive increase of our exports as well as in government revenues, it added.

Copyright Business Recorder, 2024