PM urged to resist calls to reinstate tax breaks
Large steel producers on Friday urged Prime Minister Shehbaz Sharif to resist the demand for withdrawing 10% sales tax from the newly merged districts of Khyber-Pakhtunkhwa, after the tax authority chief disclosed that a committee had been formed to reconsider the tax.
The Pakistan Association of Large Steel Producers (PALSP) has called on the PM to safeguard the documented steel industry by resisting any attempts to reinstate tax breaks for steel units running in the erstwhile federally and provincially administered tribal areas (Fata & Pata).
It added that the exemptions inflicted severe economic harm to the steel industry across the country over the last seven years in addition to causing tax losses of Rs500 billion, undermining the government's efforts to strengthen the documented economy.
Tax exemptions in Fata/Pata were originally introduced to spur economic development. These concessions covered income tax, sales tax, customs duty on plant and machinery imports and withholding tax.
The volatile regions had been exempted from taxes till June this year, which was also beyond the constitutional timeframe. The government introduced a phase-wise sales tax for the areas and imposed 10% tax for the current fiscal year to collect Rs30 billion.
However, Federal Board of Revenue (FBR) Chairman Rashid Langrial revealed this week that the PM had constituted a committee to review the recently imposed 10% tax.
The newly merged districts had been exempted from sales tax, which created immense problems in other areas due to 18% cost advantage to the industries located in the merged regions. The facility had been grossly misused, forcing the government to withdraw it.
Instead of fostering regional development, the exemptions resulted in unfair competition, encouraged non-compliance and destabilised the formal economy, the large steel producers stated.
Goods manufactured in tax-free zones flooded settled markets without paying due taxes, creating an uneven playing field. While intended as a relief for the conflict-stricken areas, the exemptions were extended far beyond their original purpose and were misused, the statement added.
The association said that from 2018 to 2024, the tax disparity resulted in near collapse of the documented steel industry in the settled regions like Hattar, Islamabad, Gujranwala, Faisalabad and Lahore. In June 2024, 16 steel units were closed in Hattar and eight in Islamabad, with additional shutdowns or suspensions in Gadoon and Hayatabad, directly linked to the tax-exempt competition from ex-Fata/Pata.
The closure of the industry negatively impacted foreign investors and as a result the first Chinese private-sector investment in the steel sector at the Rashakai economic zone was put on hold, the association said.
Sponsors of the project complained to the PM against the inordinate exemptions given to the tribal areas.
In the last seven years, over Rs500 billion worth of tax concessions had been granted in the form of sales tax, customs duty and income tax, yet not a single rupee was spent on welfare or development projects for the people of the region, the association claimed.
Instead, all profits went into the pockets of industrialists, creating an unhealthy competition, it added.
The association said that reports of fresh lobbying to restore full exemptions have alarmed the documented industry stakeholders. Any reversal would undo the progress made, destroy fair competition and reward tax evasion at the expense of compliant businesses, it warned.
Despite the government's phased withdrawal plan, the industrial units in tribal areas still continue to enjoy significant tax privileges that distort market competition. These include zero sales tax on electricity bills, complete exemptions from income tax, turnover tax and withholding tax, and duty-free import of plant and machinery.