Businessmen of the steel sector have lamented that they have been unable to send their products to the Gwadar Free Zone owing to flaws and complications in sales tax rules.
“Steel industry of the country is unable to supply its product to the Gwadar Free Zone as well as Gwadar Airport and Gwadar Port due to vague sales tax rules,” said Pakistan Association of Large Steel Producers (PALSP) Secretary General Wajid Bukhari.
“The industry produces world-class steel and has surplus capacity and ample potential to supply goods for Gwadar schemes.”
However, the industry could not avail itself of the benefit of sales tax exemption on supplies to the Gwadar Free Zone, he decried.
Large steel producers have approached relevant authorities including the Federal Board of Revenue (FBR) and highlighted their concerns about the sales tax rules.
According to sub-rule (1) of Chapter IV of the rules, the adjustment of sales tax paid at the input stage against any other supply is not permitted.
Similarly, sub-rule 2 of Chapter IV states that the manufacturer shall not be entitled to adjust input sales tax to the extent of exempted sales tax amount in any other supplies.
“We have raised concerns regarding the rules which are aimed at punishing the manufacturers and benefitting the buyers only,” said Bukhari. “Practically, the rules do not allow the input sales tax to be equal to the exempted amount.”
As a result, the manufacturers are left with no option to recover the sales tax paid, hence the government must rectify the rules, which become a hassle for the industry instead of being an advantage, he said.
The government gave exemptions to the Special Economic Zones (SEZs), China-Pakistan Economic Corridor projects, Export Processing Zones (EPZs) and a few large scale government schemes with the intension to motivate the domestic industry to supply world class materials within the country, he said.
According to him, the aim of the move was to create more jobs for Pakistanis, expand domestic industry’s capacity and attract higher amount of investment.
“However, the ground reality is completely different,” he said. “The contractors of Gwadar Free Zones are not engaging the local steel companies for the supply of steel for their projects.” He expressed concern that they were importing the material and completely ignoring locally produced steel.
The local industry held the opinion that the import of finished steel for mega projects, exempted from sales tax, was detrimental for domestic players.
“This is an alarming situation and it translates to exporting our jobs to other countries,” Bukhari said.
He urged the government to rectify the rules and take immediate measures to enable the local steel industry to supply its product to tax-exempted projects in a bid to ensure that the domestic industry benefited from the mega schemes, Bukhari said.
Steel sector analyst Arsalan Ahmed told The Express Tribune that Pakistani companies produced high quality steel in surplus to meet the needs of Gwadar projects but due to tax anomalies, it was unable to play its part in development of the schemes.
Topline Securities analyst Mehroz Khan said that while the government was focusing on import substitution and promoting local industries, there were several loopholes in the policies and regulations which were reaping adverse results.
Therefore, the authorities need to pay attention to this matter and make amends to promote the local industry and support the balance of payments, he said.
Domestic long steel industries have invested heavily in their manufacturing facilities to produce steel at par with British or American standards.
“Steel industry has surplus capacity and not using it does not make sense,” he said.
Published in The Express Tribune, February 16th, 2022.
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