The government is likely to impose 15 percent regulatory duty (RD) on import of Hot Rolled (HR) products as well as pipes and fixed sales tax at the rate of Rs 5,600 per metric ton on supply of billets and import of re-rollable scrap for providing level playing field to the local industry.
Sources told media that the Federal Board of Revenue (FBR) has endorsed the proposal of Ministry of Industries and Production to impose 15 percent regulatory duty on import of Hot Rolled (HR) products and pipes and fixed sales tax of Rs 5,600 per metric ton on supply of billets and import of re-rollable scrap to provide a level playing field to the local industry.
Sources revealed that the FBR has supported the said tax measures including 15 percent regulatory duty on import of Hot Rolled (HR) products and pipes. The FBR has also proposed regulatory duty on the import of few other items. The FBR has examined new proposals regarding imposition of RD on some items and agreed to generate additional revenue in 2014-15 through the duty.
Details revealed that a Restructuring Package of Rs.18.5 billion for Pakistan Steel Mills (PSM) was approved by the Economic Co-ordination Committee (ECC) of the Cabinet in April, 2014, which again approved Rs.1.0 billion for the payment of salaries to the employees of PSM in February, 2015. The targets as envisaged to achieve Capacity Utilisation were not achieved due to number of reasons including Duty/Taxes regime on the PSM products.
Levy of 15 percent Regulatory Duty on Import of Hot Rolled Products & Pipes: Among Steel Products, except Hot Rolled, federal government has recently imposed regulatory duty on billets, bars and wire Rods @ 15 percent and 5 percent on cold rolled coils and galvanised platted sheets to protect manufacturing industry vide SRO 18(1)/2015 dated 14-01-2015 which has created disparity with PSM’’s HR products. At this juncture of PSM’’s revival, it is seriously affecting sales of HR produced by PSM, the only producer of HR in the country. Pakistan Steel is seriously affected due to massive cheap imports from China. Several countries including Turkey, EU, USA, Philippines, Viet Nam, Malaysia, affected by Chinese exports, have levied special duty/cess up to 40 percent of the value to protect their industry whereas, some of the countries have put in place non-tariff barriers to protect their steel industry.
Following that principle, due consideration to impose 15 percent regulatory duty must also be given to Hot Rolled (HR) products (Pakistan Customs Tariff Heading No.7208) and pipes. PSM is the only manufacturer of HR Products, which generate 80 percent of PSM revenue. The Hot Rolled sheets/coils are used for making seam welded pipes for gas/water/oil, storage tanks, vessels, containers, ships, barges, launches & floating structures, fabricated sections/structures, and used as raw material for manufacturing of Cold Rolled flat products.
Sources said that the PSM can meet 72 percent of HR demand with 500,000 tons of Hot Rolled (HR) product against the annual estimated requirement of 700,000 tons of local industries, which shows that PSM can substantially meet the requirement. PSM is now running at 50 percent production capacity and committed to attain 77 percent breakeven production capacity by April 2015. At this juncture, the above disparity in tariff is seriously affecting main sales revenue of HR produced by PSM and hence its GoP funded revival Business Plan.
If 15 percent RD is imposed on HR and pipes, following benefits will accrue not only to PSM but also to the country: Firstly, the revival of PSM which largely depends upon the sale of HR. secondly, annual saving of Foreign Exchange amounting to Rs.40 billion. Rationalise the sales tax rate on billets (long products): The higher rate of Sales Tax on Billets of Pakistan Steel has forced Pak Steel, totally out of long product market, resulting in less sales tax revenue generated to ex-chequer on PSM products. Analytically, it may be noted that PSM is subjected to a high rate of fixed sales tax @ Rs.8,092 PMT, which is mother industry of prime products with inevitable major production cost, contrary to the small units having marginal cost of production with low fixed sales tax rate of Rs.5,600 PMT. The current imbalance in rate of sales tax of Rs.2, 4927 PMT between the competitors warrants rationalisation.
On the other hand under the SRO 421 of 2014 dated 4.6.2014, a General Sales Tax @17 percent on sale value has been levied on local sales of Re-meltable scraps, whereas under Sales Tax Special Procedures Rule 2007 58 H(2) upon the imports of such scrap a fix sales tax of Rs.5,600 PMT has been levied. This has also affected PSM sales. The proposal is the imposition of regulatory duty of 15 percent on import of Hot Rolled (HR) products (PCT No 7208) and pipes in line with the regulatory duty imposed in case of billets, bars and wire rods @ 15 percent and 5 percent on cold rolled coils and galvanised platted sheets. The second proposal is to impose a fixed sales tax of Rs.5,600 PMT be imposed at par for billet supplied by PSM, steel melters re-rollers and on import of rerollable scrap to provide a level playing field to the local industry.
Source: Agencies
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