The Pakistan Association of Large Steel Producers (PALSP) has urged Prime Minister Shehbaz Sharif to rationalize the turnover tax rate and extend the turnover tax adjustment period to five years to stabilize and boost the local steel industry’s exports.
The steel industry informed the prime minister in a statement that the local steel industry is currently on the verge of closure and operating on razor-thin profit margins and strongly urges the government to abolish minimum tax or at least reduce its rate from 1.25 percent to 0.25 percent for steel manufacturers, and the carry-forward period of minimum tax should be allowed for adjustment to 5 years again.
The steel makers said the acute shortage of raw material/scrap due to curbs on letters of credit (LCs), the highest interest rates, and massive rupee devaluation are the factors responsible for the situation. All these factors are beyond the control of the struggling industry, which is all set to incur forced losses (First half) or some fortunate might be able to survive on bare minimum margins.
Most of the units are operating on minimum capacities and some have shut down their operations. Due to this situation, the Chinese investor Century Steels has put the installation work of machinery on halt and is waiting for better days to restart.
In this extraordinary situation. the high rate of regressive and unjustifiable Turnover Tax on manufacturing must be rationalized to 0.25 percent. The leading business Associations/Councils have urged the government to reduce the turnover tax, PALSP stated.
Last year, the government reduced the carry-forward minimum tax period from 5 years to 3 years. For the current financial year, the industry is set to perform poorly and won’t be able to adjust carry forward turnover tax in 3 years.
The next 2 to 3 years could be most critical for the industry, so the carry-forward adjustment period of minimum tax should be allowed for 5 years. This would provide a breather to industry without any implications vis-a-vis IMF,
The purpose of introducing turnover tax was to bring those SMEs into the tax net who were deliberately declaring losses to evade taxes. Whereas on-ground turnover tax is hitting the documented tax-paying sectors that are audited by world-class auditors. Especially, the steel sector cannot evade taxes because the productions could be cross-checked through electricity units as well.
During the last 2/3 years, many steel companies have been diversifying into exports of non-ferrous metals (especially Copper & Aluminum) and most recently the Iron & Steel sector emerged as the 6th largest and fastest-growing exporting industry. Last year, exports of the Iron and Steel Sector stood at around one billion USD. In the current scenario where the industry is being crushed under enormous stress, PALSP said this could badly erode the exporting ability of this sector.
Last year, the government levied a Super Tax on large industries intended to stabilize the economic situation but at the same time, the step penalized large/documented sectors that went into the bigger scale and have the ability to go into exports, hence inadvertently encouraging the non-formal/non-documented sectors.
To stabilize and to further boost exports of the local steel industry which is currently on brink of closure and operating on very thin profit margins or incurring losses, PALSP wants the government to rationalize the turnover tax rate. The Association further wants an increase in the turnover tax adjustment period to 5 years.
They are of the view that the government’s timely support would help the industry survive in this difficult time instead of closing operations.
