The Pakistan Steel Melters Association (PSMA) has asked the Federal Board of Revenue (FBR) to reduce turnover tax from one percent to 0.2 percent keeping in view low profits of the industry and withdraw 3.5 percent withholding tax on local purchases in the upcoming budget (2011-2012), it was reliably learnt.
Sources involved in budget preparation exercise at the Engineering Development Board (EDB) told Business Recorder that the PSMA's contention was that FBR compensated certain industries with high turnover and low profits from 1% to 0.2% turnover tax. These included flour mills, SNGPL, SSGPL, POL products and refineries. The PSMA stated that the Steel Melting Furnace Industry also falls in the above category with involvement of heavy finances, high turn over but low profits.
The Melters Association apprehended that the non-documented sector was likely to benefit whereas steel melting industry was being heavily over burdened. In order to balance it out it, the PSMA suggested that in cases of AOP, individual limited or proprietorship companies, the turnover tax be reduced from 1% to 0.2%. The Melters Association stated that at the time of formulation of SRO.678 the burden of tax of the scrap dealers was taken over by the melters.
It was agreed in principle that gradually all the scrap dealers would be taken into the tax net and registered accordingly by the FBR. Now, the 3.5% WHT on local purchases is also demanded from the melters. This WHT tax needs to be abolished for the melters till the scrap dealers get registered.
According to the association, in order to avoid paying sales tax of Rs 6 per unit of electricity certain furnaces opt for the normal regime payments which are much more than the special procedure. Of course, taking advantage of the honourable Supreme Court decision that melters could opt for either normal regime or for the special procedure. This can well be established that one has to pay much more in the old regime as compared to the special procedure. But certain unscrupulous persons in connivance with regional tax authorities neither pay Rs 6 nor adhere to the old regime. The defaulters gain benefits because of the extremely slow system of our law and ultimately it is the genuine taxpayers who are affected the most.
The PSMA has proposed that the furnaces established here are neither paying complete electricity charges nor paying sales tax of Rs 6 per electricity unit. They are hurting genuine tax payers by selling ingot at Islamabad and Lahore at low prices. In other proposals, the melters association wanted steps to be taken to address serious imbalance between locally produced ingots and ship plates. According to PSMA, the steel melting industry is one of the highest revenue generating industry in Pakistan. Presently it is facing serious threat due to import of ships for breaking at abnormally low prices. The melting industry has the capacity to manufacture 4m tons of billets per annum but is hardly making 2 to 2.5 m tons per year.
This is adversely affecting the steel melting industry. The decline in melting business can be verified from the monthly production data since last two years. The melters industry wanted increase in assessment of re-rollable material (scrap). It stated that currently per ton re-rollable material (scrap) is being assessed at $280 which needs to be increased to over $500 per ton because the imported billet is being assessed at $500 per ton. The re-rollable material in most of the cases contains girders, channels and prime plates for fabrication, etc. These are prime materials.
The association proposed that prime materials should not be allowed to be imported because that shall directly hurt the local industry, as it is quite capable to manufacture as per the international standards. It further submitted that such a deliberate oversight on the part of the customs Karachi is most regrettable where millions of rupees have been lost to the exchequer and the melting industry has been greatly harmed.