According to the proposals, the FBR has compensated certain industries with high turnover and low profits from 1percent to 0.2 percent turnover tax. The industries are flour mills, SNGPL, SSGPL, POL Products refineries and rice units. It is submitted that Steel Melting Furnace industry also falls in the above category with the involvement of heavy finances, high turnover but low profits. It is apprehended that the non-documented sector is likely to benefit while steel melting industry to be heavily over burdened.
In order to balance it out it is suggested that AOP, individual limited or proprietorship companies, the turnover tax be reduced from 1percent to 0.2percent. It informed the Board that the last four years have been most difficult for the steel melting industry. This industry is one of the highest revenue generating industries in Pakistan. Presently, the melting industry has the capacity to manufacture 4 million tons of billets per annum but is hardly able to make 2 /2.5 million tons per year. This decline can be verified from the monthly production data of the last two years.
Giving comparison of ship breaking industry and steel sector, the association submitted that the steel melters pay one percent withholding tax at the import stage which is not their final liability. Whereas, ship breakers also pay one percent at the import stage and this is their final liability of the income tax.
Similarly, steel melters have to pay 5 percent income tax on electricity consumed. This accumulates to a huge amount since electricity is utilised as a raw material in the furnaces. While under this head no electricity is used by the ship breakers, the burden has to be borne by the steel melters only.
The local scrap dealers have not got themselves registered till to date. As per the direction of the FBR the steel melters have to bear additional cost of 3.5percent withholding tax on their local purchases. The units have to pay income tax also while submitting returns on yearly basis. The ship breakers do not have to pay this tax.
During ship breaking a lot of costly machinery is extracted which is sold at high price. Similarly brass, copper, aluminium, so extracted gives good dividends to the ship breakers. The exchequer need to be benefited by levy of heavy duties to the ship breakers since they are making good profits without paying due taxes, it proposed. The association said that the impact of electricity on the production of furnaces is directly proportionate to the rate of electricity. Since the rates have been doubled the impact is also two fold.
In order to avoid paying sales tax of Rs 4 per unit of electricity certain furnaces opt for the normal regime payments which are much more than the special procedure. Of course, taking advantage of the court’s decision that melters could opt for either normal regime or for the special procedure. This can be confirmed by any good auditor of repute that one has to pay much more in the old regime as compared to the special procedure. But certain unscrupulous persons in connivance with the lower staff of the regional tax office neither pay Rs 4 per unit of power consumed nor adhere to the old regime. The defaulters gain benefit because of the extremely slow system of our law. Ultimately it is the genuine taxpayers who are affected the most.
It said that certain taxes which are not due to this industry have been levied. The withholding tax of 3.5 percent on local supplies is one of them. It was levied in the Federal Budget of 2008, but without registering the local scrap dealers, which was due to them only. The local supplies are not adjustable either. However, after a very hectic exercise the WHT on local supplies was reduced to 1percent vide SRO 787(1)2011. But surprisingly as per SRO 550 (1) 2012 para (24B) (b) it has been quashed. It is suggested that all small furnaces on B-2 Electricity Connection throughout Pakistan be levied sales tax at the rate of Rs 4/- per electricity unit consumed.
The association has asked for exemption from payment of withholding tax @ 3.5percent on supplies/purchases u/s 153 of the Income Tax Ordinance, 2001; payment of income tax on import of raw material, ie Scrap, Ferro Alloyes, Manganese, Re-Factories, Nozzles, Copper Moldings, Slide Gates, Porous Plugs and other Chemicals etc, u/s 148 of the income tax Ordinance, 2001 and 5 percent withholding tax on electric bills.