NSAC asks to defer and forego some of the taxes being charged to the private steel sector

KARACHI: National Steel Advisory Council (NSAC) has suggested the government defer and forego some of the taxes being charged to the private steel sector .

In response to this crisis, governments and central banks all over the world have enacted fiscal and monetary stimulus measures to counteract the disruption caused by the coronavirus. With the Pakistani economy already struggling to stay afloat, the Coronavirus crisis is going to create a severe cash crunch and drastic reduction in demand.

These factors are sure to leave many businesses bankrupt and hundreds of thousands unemployed unless the government acts immediately.

Steel Industries across the world have been granted subsequent support from their respective governments in terms of tax relief, loans, markup relief, utility bills, interest rates etc.

But unfortunately, the recently announced Economic Relief Package by the Government of Pakistan has neglected the local steel manufacturing sector even though steel is exported from Pakistan.

In Pakistan, the Steel industry, which is a backbone of Industrialization, is mainly in the private sector. At this critical time the Government needs to motivate this Strategic Sector, which is a huge tax payer, by improving its cash flow so that they continue to play a role in ensuring employment is sustained As the Government of Pakistan does not have the immediate financial resources the National Steel Advisory Council would like to suggest the government defer and forego some of the taxes being charged to the private steel sector .

NSAC futher suggests the following measures to be implemented immediately: 1. Turnover tax U/S 113 for industry should be reduced to 0.% from 1.5% for 2020 and 2021.
2. 100% adjustment of Sales Tax input may be allowed u/s 8b against the available output. Currently steels companies are required to withhold 10% sales tax even though full adjustment is granted to Pakistan Steel Mills (via SRO 1190) which is out-of-operations since 2014-15.
3. Output Sales tax from manufacturing Industry for Feb to June should be charged in equal installments from July 2020 to Dec 2020.
4. Remove the 3% additional sale tax on raw material imports.
5. Immediately release all pending Income tax and Sales tax refunds.
6. Stop charging advance tax on raw material imported by industry for 2020 in order to enhance cash flow.
7. Stop advance tax on Goods, services and contracts u/s153 for 2020.
8. Waive payment of EOBI/ Professional Tax/WPPF and WWF for 2019-20.
9. Additional Customs Duty to be eliminated for those items which have a normal customs duty of 16% or more.
10. With the production coming to halt, demurrage charges must be waived off for the lock down period. This includes all the detention charges and penal interests. These charges are even being levied on imported goods kept in bonded warehouses despite the Industries being locked down upon the instructions of the Provincial Government. Furthermore, as a result of the lockdown documents for goods being imported into the country have been severely delayed causing importers to pay for documents at higher cost rupee rate even though goods were received prior to the rupee depreciating. In this respect compensation should be provided.
11. Waive fixed charges on Electricity during lockdown, Furthermore Power / Gas Bills must be deferred to be paid in installments over the least six months.
12. Tariff and Regulatory Duty on Heavy / Re-meltable Steel Scrap (7204.3000, 7204.4100, 7204.4990) and for DRI/HBI (7203-10000, 72039000) must be reduced to 0% as they are the raw material for the steel melting industry producing long steel products and the industry contributes heavily to the Civil. Mechanical and Construction industry.
13. Hot Rolled Coils were produced by the Pakistan Steel Mills and are no longer being locally produced since the year 2014-15, hence the regulatory duties on Hot Rolled Coils should be abolished as it is a raw material.
14. There must be at least a 3-months relief in mark-up on working capital loans as there is no production and banks continue to charge Mark-up on its loans or either the interest rate must be reduced to not more than 5% with immediate effect. (The US has cut its interest rates for all industries to 0%, Source: The Guardian)
15. All principal payments for long term and short term loans should be deferred for the next 12 months while industry can try to service interest at a reduced rate of 5%.
16. It is also being stressed upon that the Government should include and take local Steel industry as part and parcel of the Construction sector. Therefore it is requested that the all areas of the local Steel industry should also be taken on board in the proposed industrial package of Construction sector by the honorable Prime Minister.

Pakistan’s steel sector is a low margin business where the requirements for working capital are very high. With the sudden increase in interest rate pre COVID the sector was already struggling before the lockdown and provided the current situation which has led to closure of businesses, the steel sector requires immediate attention and support from the Government of Pakistan.

Timely and targeted measures are need of the hour to support businesses through this period of disruption caused by COVID-19. Government of Pakistan must act now to save the economy from de-industrialization and unemployment.

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