Pakistan Association of Large Steel Producers (PALSP) has appealed to the government of Pakistan to remove the import duty imposed on steel scrap and has opposed a reduction of taxes applicable on steel imports. Weak domestic demand amid the COVID-19 pandemic has pushed Pakistan’s steel sector at the brink of collapse, according to a statement issued by PALSP.
PALSP represents 60pc of Pakistan’s primary steel capacity. Major steel producers in the country have invested hugely to enhance their production capacities in recent years. However, serious liquidity issues and events such as the halt of China-Pakistan Economic Corridor project have severely hurt steelmaker and the Pakistani economy.
The steel industry is seeking government supports to revive demand which has fallen drastically due to the pandemic, ongoing fasting month of Ramadan and the upcoming monsoon season. Scrap importers and traders are unable to clear shipments and face heavy detention and demurrage charges at the ports as Ramadan festivity as is further limiting trading activity.
PALSP has requested that import tariff on steel billets and rebar should remain unchanged, while the import tariff on re-rollable material needs to be equated with that of billets. The products made from re-rollable material are of sub-standard quality and undercut the formal sector.
To stimulate the economy, the government of Pakistan last month announced a relief package for the construction sector called the Naya Pakistan Housing Scheme. The government will disburse PKR30bn ($179.6m) as subsidy for the scheme and a reduction in tax rates by 90 per cent will be offered to developers who will construct houses under the scheme. Those who invest in a newly constructed building until 30 June 2022 will not be required to declare their source of income. Withholding tax on all materials and services for the construction sector would be abolished except for the steel and cement sectors. But steel demand in Pakistan is yet to pick up.
National Steel Advisory council (NSAC), an association of 10 leading steel manufacturers in Pakistan, who account for up to 70pc of Pakistan’s total steel production has demanded rationalization of the import value of steel scrap. NASC has urged the government to align the import value of scrap with the rates prevalent in the global market.
NSAC pointed out that for the success of the construction package it is essential to maintain the cost and quality of construction at economic levels. The global steel scrap price stands at $230-250/mt whereas the fixed cost is at $360/mt, resulting in increased production costs. Other demands made by NSAC include exemption from minimum turnover tax and waiver in electricity charges.
Reduction for taxes on steel imports would lead to the closure of the domestic steel industry resulting in mass unemployment. The government will also lose revenues of about PKR100bn and there will be a sharp decline in the domestic steel supply to the construction industry.