Steel sector calls for reduction in tax rate

Stakeholders say levy is counter-productive for dealers and distributors

Steel sector has requested the government to reduce the minimum tax rate for dealers and distributors citing that the tax was counter-productive for them to function effectively.

Two years ago, the incumbent government imposed 1.5% tax on dealers and distributors of steel to enhance the number of tax filers, said JS Research analyst Arsalan Ahmed while talking to The Express Tribune.

“This 1.5% rate is quite close to the margins set by the dealers and it is further encouraging them to remain in the undocumented segment,” he added.

The government should reduce the tax rate from 1.5% to 0.25% on dealers and distributors of steel sector keeping in view the thin margins set by them, said Pakistan Association of Large Steel Producers (PALSP) Secretary General Syed Wajid Bukhari.

He made the request in a letter written to Federal Minister for Industries and Production Hammad Azhar, Finance Minister Abdul Hafeez Shaikh and Special Assistant to Prime Minister on Revenue Dr Waqar Masood Khan.

He pointed out that manufacturers of steel products operated on slim profit margins and the dealers and distributors of the merchandise also followed the same earning plan.

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“In this regard, the existing rate of minimum tax (1.5%) applicable under section 113 of the Income Tax Ordinance, 2001 not only discourages steel manufactures from making future investments but also places additional burden on cash flows and disrupts supply chain of steel sector,” he said. “It further discourages the stakeholders from documenting their business transactions with the Federal Board of Revenue (FBR).”

It is a counter-productive levy that is not likely to produce the desired results, he stressed. “We humbly request the authorities to consider our request in the upcoming ordinance and reduce the minimum tax rate from 1.5% to 0.25% for the dealers and distributors, under Section 113.”

As a result of reduction in minimum tax rate, the distributors, dealers, retailers and traders will be encouraged to enter the documented segment of the economy which will ultimately lead to expansion in tax revenue for the government.

On similar grounds, the federal government has already facilitated dealers and sub-dealers of sugar, cement and edible oil by reducing minimum tax rate from 1.5% to 0.25% by inserting clause 24(D) of part II of Second Schedule through Finance Act, 2019, said Bukhari.

Published in The Express Tribune, January 31^st, 2021.

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