LAHORE: Steel manufacturing industry has expressed concerns over delay in issuing the order–SRO (statutory regulatory order)–to notify the change in the tax regime for the steel producers using local scrap from unregistered suppliers. It termed the delay a reflection of the lack of seriousness of the Federal Bureau of Revenue (FBR) to plug tax evasion to boost tax revenues at a time when the country is facing a cumulative tax collection shortfall of Rs93bn in the target for the first quarter of the present fiscal year till September.

“The government is losing nearly Rs8bn in taxes every month due to the unexplained reluctance of the FBR to implement the budgetary decision to impose 18pc sales tax on the steel furnaces using locally procured scrap to stop tax evasion by the melters. This is in spite of our repeated meetings with the previous and present governments,” says Javaid Mughal, a Punjab-based steel manufacturer, while talking to Dawn.

The government had approved this change in the tax regime to bring billet produced from local scrap into the tax net and document the unregulated part of the steel manufacturing industry.

The tax compliant companies using imported scrap pay a total tax of 18pc or Rs40,500 per tonne of billet – Rs25,000 at the scrap import stage and Rs25,500 on their sales. On the other hand, those who use local scrap get away with only a trickle of tax on their value chain.

“This situation had not only been causing a significant tax revenue shortfall for the government but also massive sales losses to the taxpaying organised steel sector as the tax evaders would undercut their retail prices,” Mr Mughal warned.

In order to resolve this anomaly, according to him, the prime minister had ordered to exempt the sale of local scrap and instead made the furnaces using it liable for payment of total tax in lump sum at the rate of 18pc, like the rest of the industry, in the current year’s budget.

However, he lamented, the tax bureaucracy is delaying issuance of a simple SRO to start collecting the tax for unexplained reasons for the last three months. The steel sector supported this reform, highlighting the immense revenue potential and stressing the critical need to control the illegal trade crippling the sector. It was expected that this single measure would have helped the government to net Rs85bn to 100bn annually.

“This delay seems strange given the fact that the FBR is developing a transformation plan for tax compliance and enforcement,” Mr Mughal said and added: “In this grim landscape of economic mismanagement, Pakistan is left grappling with the fallout of a disastrous tax policy that has brought an important industry on its knees.”

Published in Dawn, October 4th, 2024