ISLAMABAD: The Pakistan Association of Large Steel Producers (PALSP) has expressed serious concerns regarding the misuse of sales tax exemptions granted to manufacturers in the Newly Merged Districts (NMDs) of Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA).
In a letter addressed to the Finance Minister, PALSP highlighted the alarming extent of tax evasion specifically in the long steel industry, estimating a staggering evasion of approximately Rs 150 billion over a span of five years.
Under the Finance Act 2018, sales tax exemptions were originally granted only for goods manufactured and consumed within the NMDs for a period of five years. The aim of this exemption was to provide relief to the people of NMDs during their transition into the documented economy until June 30, 2023.
However, PALSP has uncovered widespread misuse of these exemptions by individuals who do not belong to the NMDs but have formed partnerships or employed NMD representatives in various sectors, including the long steel industry, flat steel industry, ghee industry, and pipe manufacturing, among others.
Saqib Riaz, Chairman of PALSP, expressed concern over the situation, stating, “The misuse of sales tax exemptions in the NMDs has resulted in a significant loss for the national exchequer and has unfairly advantaged a select group of manufacturers. This not only undermines the principles of fair competition but also hampers the growth and development of domestic steel producers. Over the span of five years, more than 1 billion USD has been allocated to these manufacturers, favoring their interests while disregarding the overall impact on the economy.”
The severity of the issue becomes evident when considering the long steel industry alone. Despite having the capacity to produce 944,851 tons of steel, which accounts for approximately 25% of Pakistan’s total steel consumption, the actual steel consumption within the NMDs is a mere 2% of the country’s total steel consumption. This indicates that around 92% of the steel produced in NMDs is being smuggled to settled areas without the payment of sales tax.
PALSP estimates that this rampant tax evasion has led to an annual loss of Rs 30.61 billion to the national exchequer, with a total estimated loss of approximately Rs 150 billion over five years in the long steel industry alone. The recovery required in the remaining sectors is projected to be even more substantial, amounting to hundreds of billions of rupees. Furthermore, it is important to note that the supply of electricity to steel and ghee industries in NMDs was not exempt from sales tax, further increasing the recoverable amount.
The Chairman of PALSP emphasized the immediate need for action, stating, “It is crucial that the value of this tax evasion is ascertained and recovered promptly. The funds recovered can be utilized for the betterment of the nation, including investment in infrastructure, technology, and education, to promote sustainable economic growth.” PALSP urges the Finance Minister to take immediate action to ascertain the value of this tax evasion and ensure its recovery in the interest of the national exchequer. It is imperative that the businessmen and tax officials involved in this malpractice are held accountable.
PALSP’s investigation has revealed disturbing efforts by influential owners of steel and ghee mills in the NMDs to lobby for the retrospective waiver of this recoverable tax solely for their personal interests, disregarding the welfare of the common people in the NMDs.
PALSP remains committed to combating tax evasion and promoting a fair and transparent business environment in Pakistan’s steel industry.