The Pakistan Association of Large Steel Producers (PALSP) has called upon the government to immediately withdraw the tax exemptions granted to industrial units in the former tribal areas (now merged districts or NMDs). According to PALSP, these exemptions are being widely misused, causing severe harm to the local tax-paying industries in Pakistan.
In a communication addressed to the Prime Minister, PALSP expressed its appreciation for some recent government initiatives aimed at revitalizing the local industrial sector. However, it also voiced strong concerns over the agenda discussed during a meeting of the Committee on Taxation Regime of NMDs held on December 26, 2024. PALSP noted that the meeting’s agenda appears to perpetuate the long-standing tax exemptions granted to NMDs, a policy that has been in place for the past six to seven years.
A Two-Tier Tax System
The association criticized the tax exemptions, arguing that they create a perception of a dual system of governance—one state but two sets of rules. Industrial units in FATA and PATA (former tribal areas now part of Pakistan) benefit from these exemptions but misuse them by selling their untaxed products in tariff areas of Pakistan. This practice has caused closures of numerous steel manufacturing units in regions like Hattar Estate, Islamabad, and Gadoon Industrial Estate.
“This discriminatory policy is devastating the local, tax-paying industries,” PALSP stated. “More than 60% of the steel sector has been wiped out, with over 50 units shutting down across major industrial hubs like KPK, Islamabad, Lahore, Karachi, and Gujranwala/Daska.”
The closure of KPK’s largest steel production unit, which produced 400 tons of rebars daily, alone represents a loss of billions to the national exchequer.
Impact Beyond Steel
The PALSP emphasized that the issue extends beyond the steel sector. Industries such as ghee, plastics, and tea are also suffering from the misuse of these tax exemptions. Foreign investors like Century Steel, a major Chinese private-sector entity, have threatened to cease operations and halt further investments due to the precarious situation in the local market.
Call for Immediate Action
The association highlighted that these exemptions, initially granted to provide relief to the underprivileged populations of FATA/PATA, are benefiting a small fraction of industries (about 2%) at the cost of 98% of industries operating in taxed areas. Attempts to safeguard government revenue through mechanisms like pay-orders for raw material imports have also been undermined by legal challenges, with a recent Peshawar High Court judgment favoring the NMD-based mills.
PALSP accused influential political and business figures with vested interests in FATA/PATA of misleading the government to continue these exemptions for personal gain rather than public welfare.
A Uniform Tax Regime
The association has urged the government to establish a fair and transparent tax system uniformly applied across the country. It warned that extending these exemptions further would deepen the crisis across steel, oil, ghee, plastics, tea, and other critical industries. PALSP emphasized that decisive action is required to protect the remaining industrial base and foster a level playing field for all businesses in Pakistan.