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PSMA budgetary proposals.

Iron and steel ore/scrap should be equally treated for levy of taxes and duties and there should be no distinction between public and private sector industries while imposing taxes and levies on raw material.

This is part of budgetary proposals presented by the Pakistan, Steel Melters Association to the Federation of Pakistan0 Chambers of Commerce and Industry which is expected to submit an integrated proposals package to the Federal Ministry of Finance and other related ministries.

PSMA has also called for reducing the Custom Duty to Rs.400 per metric ton and abolishing the Sales Tax on import scrap altogether. With the present duty structure for steel, production cost of ingots/billets from scrap is Rs. 11.200 to Rs. 11,800 per ton. This price as compared to Rs. 9900 per ton selling price of Pakistan Steel billets has rendered manufacture of billets/ingots from imported scrap economically enviable.

Approximately 95 per cent of furnaces which manufacture ingots/billets from scrap are in the private sector. A serious discrimination thus exists between duties on raw materials for furnaces in the public sector vis-a-vis the private sector.

Due to the extremely high rate of duties and obvious economic reasons, import of scrap has declined considerably and there is an acute shortage of scrap in the local market. A large number of furnaces have either closed down or have cut down their production drastically for shortage/lack of scrap. Prices of scrap have shot up from approximately Rs 5800 to Rs. 7500 per ton in a span of eight months. Ingots and billets, the Association asserts, are two comparable products manufactured by different steel making processes. Their use is identical. Both are used by the rolling mills for conversation into mild steel long products. Prior to the budget 1989-90 both were levied equal Excise Duty of Rs. 600 per metric ton.

A serious discrimination was created in the duty structure of the two products in budget 1989-90. Billets were levied 12.5 per cent Sales Tax and Rs. 600 Excise Duty and ingots only Rs. 375 per ton fixed rate of Sales Tax. This disparity made manufacture of billets economically enviable. Units which had imported billet casting plants and brought in advanced technology at huge costs, were forced to close down their plants and revert to the obsolete and age-old process of ingots making, putting the industry in reverse gear.

It has been proposed that billets and ingots be treated at par for levy to taxes and duties. PSMA suggests that the ratio of duties between steel melting and shipbreaking be rationalised on the basis of conversion cost of scrap to ingots/billets vis-a-vis shipbreaking. It is further suggested that import of steel scrap should be not be subjected to Custom Duty of more than Rs. 418 per metric ton and that no sale tax be levied on it.

The association has also stressed the need for banning the import of re-rollable scrap as in the present duty structure for steel, re-rollable scrap costs less than the cost of ingots/billets, and hence provides incentive to import re-rollable scrap much to the detriment of the local steel industry, including Pakistan Steel.

PSMA holds that all iron and steel products are levied 12.5 per cent Sales Tax, but special steel billets imported at concessionary rate of 20 per cent duty are exempted from Sales Tax. ITP value fixed on import of steel products including billets is on the lower side and does not reflect the price arise in the international market.

The landed cost of special steel billets and second quality billets, it points out, comes to Rs. 9516 and Rs. 10.580 per metric ton respectively as compared to approximately Rs. 11,200/11,800 per metric ton production cost of locally manufacture billets/ingots. This has put the local steel industry at a serious disadvantage. Marketability of their products is being affected, causing heavy financial losses to them.

It has, therefore, been proposed that import of special steel billets be banned. If this is not possible, it should be levied full rate of duty and Sales Tax. It also demands a ban on the import of commercial grade billets.

The association says that electricity is a dominant factor in the economics of steel melting. Loadshedding, shut/break down etc., have a drastic effect on the steel melting process which apart from adding to the production cost and loss of production due to idling of labour, also damage the plants and creates multifarious technical problems. Production in some furnaces becomes uneconomical and they are forced to close down temporarily.

WAPDA should, therefore, be asked to rationalise their tariff in a manner that during low consumption (night) period the industrial units are charged half rates, all industries be treated equally for loadshedding, WAPDA should not levy fixed charges/MDI for the actual duration of loadshedding, furnaces which become uneconomical due to loadshedding should be allowed temporary disconnection for the closure period without levy of fixed charges/MDI, FAC should be brought down to a level corresponding to the reduction in world oil prices, MDI should be charged on the basis of actual reading of each month.

Steel Melters Association has taken an exception to the draft General Sales Tax (Act) 1989 in its present form as it is unsuitable and impracticable in the environment and pattern of trading prevailing in our country.
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Title Annotation:Pakistan Steel Melters Association
Author:Qureshi, Afzal
Publication:Economic Review
Date:Apr 1, 1990
Words:902
Previous Article:Proposals for federal budget 1990-91.
Next Article:Mechanism of withholding tax.
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