The delay in implementing budgetary measures to modify the tax regime for steel producers sourcing local scrap from unregistered suppliers has cost the government over PKR 30 bln (USD 108 mln) since July. The measures aim to prevent tax evasion and protect organized steelmakers.
Tax-compliant steelmakers estimate a monthly tax loss of PKR 8 bln (USD 29 mln) due to the Federal Board of Revenue’s (FBR) reluctance to impose an 18pct sales tax on steel furnaces using local scrap, which would curb evasion by unregistered melters.
“This comes at a time when the FBR is struggling with a significant tax shortfall and is focused on improving enforcement,” said Javaid Mughal of Mughal Steel, one of Pakistan’s largest steel producers. Despite several meetings with top FBR officials, the necessary SRO has not been issued, delaying the inclusion of billet produced from local scrap in the tax net.
Currently, companies using imported scrap pay 18pct tax, or PKR 40,500 (USD 146) per ton of billet, while those using local scrap avoid taxes along the value chain. This discrepancy is hurting government revenue and the organized steel sector, as tax evaders undercut retail prices.
The prime minister had ordered that sales of local scrap be exempted and instead made furnaces using it liable for a lump sum 18pct tax, like the rest of the industry.
Mughal added that at least two major steel mills in Karachi have partially shut down due to losses from price competition with tax-evading melters. “There’s no accountability for FBR officials delaying this decision, despite the massive revenue loss,” he concluded.
1 USD / 278 PKR
