To stabilise and increase the exports of the local steel industry, the Pakistan Association of Large Steel Producers (PALSP) has urged Prime Minister Shehbaz Sharif to rationalise the turnover tax rate and lengthen the turnover tax adjustment term to five years.
The local steel industry is currently on the verge of closure and operating on razor-thin profit margins, the steel industry informed the prime minister in a statement. The steel industry strongly urges the government to abolish minimum tax or at the very least reduce its rate for steel manufacturers from 1.25 percent to 0.25 percent, and the carry-forward period of minimum tax should be allowed for adjustment to 5 years again.
The severe scarcity of scrap and raw materials brought on by restrictions on letters of credit (LCs), the highest interest rates, and the significant depreciation of the rupee, according to the steel producers, are to blame. All of these variables are out of the struggling industry’s hands, which is slated to suffer forced losses in the first half or, if they are lucky, might be able to live on the slimmest of margins.
The majority of the machines are running at minimal capacity, and some have stopped production altogether. The Chinese investor Century Steels has halted the installation of equipment as a result of this and is waiting for better times to resume.
In this unique circumstance. Manufacturing Turnover Tax must be reduced from its exorbitant, unjustified rate to 0.25 percent. According to PALSP, the government has been encouraged to lower the turnover tax by the top business associations and councils.
The minimum carry-forward tax period was lowered by the government from five to three years last year. The industry is expected to perform badly for the current fiscal year and won’t be able to modify carry forward turnover tax for three years.
The business may face its greatest challenges over the next two to three years, so a five-year carry-forward adjustment period for the minimum tax should be permitted. This would give the economy a break without having any effects on the IMF.
Turnover tax was introduced with the intention of bringing SMEs that knowingly declared losses to avoid paying taxes into the tax system. While the documented tax-paying industries are being struck by the on-the-ground turnover tax, which is being checked by top-notch auditors. Particularly, the steel industry is unable to evade taxes due to the possibility of cross-checking output through electricity units as well.
Recently, the Iron & Steel sector has emerged as the 6th biggest and fastest-growing exporting industry. Over the past two or three years, many steel companies have been diversifying into exports of non-ferrous metals (especially Copper & Aluminum). Around $1 billion USD worth of iron and steel products were exported last year.according to PALSP, the industry is currently being severely stressed, which could seriously harm this sector’s capacity to export.
The government imposed a Super Tax on large industries last year in an effort to stabilise the economy, but the measure also penalised large, documented sectors that expanded and had the potential to export, unintentionally promoting the informal, undocumented sectors.
PALSP wants the government to rationalise the turnover tax rate in order to stabilise and further increase exports of the local steel industry, which is presently on the verge of closure and operating on extremely slim profit margins or incurring losses. The Association also requests a five-year extension of the turnover tax adjustment time.