ISLAMABAD: The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to investigate the phenomenon of large-scale misdeclaration of prime/brand new steel under the garb of scrap at the import stage, destroying the documented steel manufacturers.

According to a directive of the FTO to the FBR, the FTO has given a deadline of July 2022 to FBR for early submission of the report on the allegations made by large steel producers.

The Pakistan Association of Large Steel Producers (PALSP) has submitted the case to the FTO about the flagrant violation of import of prime steel under the garb of scrap. The case was already submitted to the FTO office, comprising a full report on the subject that explains how large-scale misdeclaration of prime/brand new steel as scrap is hitting the national exchequer and destroying the documented steel manufacturers who pay govt taxes ethically.

These kinds of practices are damaging the local steel industry and above all, discouraging further investment in the steel sector.

The industry has further requested the FTO to address this issue of great national importance on priority basis. The industry has also approached all the relevant government offices i.e. Ministry of Commerce and FBR authorities to address the issue, whereas, there is no outcome of the exercise.

The industry hopes for early resolution of the issue that will not only promote healthy competition in the market but also increase government revenue, it added.

The report revealed that the large-scale import of new steel by misdeclaring it as scrap/re-rollable scrap through misuse of loopholes in the Import Policy Order and the Customs Rules is resulting in a huge loss of government revenue to the tune of Rs10-15 billion annually. This practice has continued unhindered for the last five to seven years and it is making the documented sector bleed.

Steel sector: net margins of listed companies shrink in 5 years

According to a research study conducted by the industry, during the last five to seven years, 500,000 to one million tons of brand-new steel is making its way to Pakistan.

According to verifiable facts, the exporting countries officially report/declare it as brand-new steel whereas, the Pakistani authorities misdeclare it as scrap. In 2021, Customs Intelligence took action at Port Qasim and blocked huge consignments of brand-new steel that was cleared in the garb of scrap.

In the past over five years, the steel sector has been pursuing the matter with the Ministry of Commerce suggesting an amendment in the relevant clauses of the IPO in order to stop this practice. However, the industry’s appeals were not heeded, and the ministry refused to act.

Similarly, the steel sector has been pleading the matter with FBR authorities. In the budgetary proposals for the last year 2020-21, FBR authorities were requested an amendment in the Customs rules to disallow the mutilation of steel at ports. The steel sector’s stance was upheld and supported by the Technical Committee of the FBR and later SRO 1045 was issued by the FBR on its website and the amendment was strongly supported by leading Associations of the steel sector.

However, due to pressure from the rent seekers and vested interests, the SRO 1045 was not issued. When asked for reasons, we were verbally told that due to extreme pressures of the re-rollable material importers lobby, the matter was referred to the Ministry of Commerce.

The FBR/Customs authorities are requested that SRO 1045 may be issued without any delay. The issuance has nothing to do with the budget, it is an administrative matter to check the loss of revenue and to curb the import of sub-standard raw materials, which is not allowed under the PSQCA Act.

The menace of blatant mis-declaration of new/usable steel as scrap is not only giving revenue loss of billions of rupees to the exchequer but also destroying the documented steel manufacturers who pay government taxes ethically, who in recent years achieved economy of scale and have the potential to make Pakistan as a steel exporting country. As a result, further investments in the steel sector have been put on the hold.

Copyright Business Recorder, 2022