ISLAMABAD: The Privatisation Commission (PC) has sought huge tax concessions and curbs on steel imports to make Pakistan Steel Mills (PSM) an attractive business venture for investors as some local businesses have started positioning themselves for acquiring the unit on lease.
Unlike the past, this time around the government has decided to keep deferred tax assets of Rs41 billion instead of passing the benefit on to prospective buyers.
The PC board has recommended that all tax incentives that are currently available to investors in the Special Economic Zones should also be extended to the prospective investors in the country’s largest but ailing industrial complex.
The incentive package was part of a new transaction structure presented by the financial advisers that called for giving PSM on lease for 30 years to the private sector, said sources in the Ministry of Finance.
The demand for incentives comes as some leading industrial units such as Amreli Steels and Siddique Sons Engineering Limited think of acquiring the mill on lease.
Sources said the Amreli Group was planning to form a consortium with the Iranians. The Chinese were also initially keen to take over the steel mill.
“People have approached us for forming a consortium and we are thinking about it, but have not made a decision yet,” said Abbas Akbarali, Chairman and Chief Executive Officer of Amreli Steels while talking to The Express Tribune.
Amreli Steels posted a net profit of Rs1.28 billion in the last fiscal year ended June 30, 2016.
Sources said the PC board sought a 10-year income tax holiday, duty-free import of plant and machinery and imposition of 35% regulatory duty on the import of steel products for five years to promote the local steel industry.
As per the approved plan, the unadjusted tax loss of Rs41.1 billion as of September 30 last year would remain with PSM and would not be available to the investors.
The plan has yet to be approved by the Cabinet Committee on Privatisation (CCOP). Finance and Privatisation Minister Ishaq Dar wanted the CCOP to review the transaction structure once PSM liabilities were settled, sources said.
PSM has been closed for the past around two years after Sui Southern Gas Company (SSGC) stopped gas supply for delay in payments. Interesting enough, both the government and SSGC are now keen to restore the supplies, but only for new investors.
The national exchequer has sustained a loss of Rs215 billion due to the closure of PSM and took another hit of $1.5 billion due to import of steel products that were being produced at PSM, according to a letter of the Pakistan Steel Peoples Workers Union sent to parliament this week.
The union claimed that the losses were the result of unavailability of raw material and cut in gas supplies, which was the fault of the government. It alleged that when the PML-N government came to power in mid-2013 the losses were Rs200 billion, which have now increased to Rs415 billion.
A recent report of the Auditor General of Pakistan (AGP) revealed irregularities of Rs4.1 billion in the procurement of raw material and sale of inventory.
The financial advisers have also proposed certain changes in the business model of PSM aimed at getting some tax benefits.
According to the transaction structure, the income in respect of concession of land and building together with plant and machinery would be taxable as ‘income from other sources’.
The financial advisers have also sought amendments to the Income Tax Ordinance 2001 to exempt the lease transaction from 10% tax.
Published in The Express Tribune, January 29th, 2017.
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