PALSP team informs Aurangzeb: Tariff cut will result in closure of steel industry

Business Recorder

2 days ago

ISLAMABAD: Pakistan Association of Large Steel Producers has warned the government that reduction in tariff of finished steel under the garb of tariff rationalisation will result in closure of the domestic steel industry.
These views were expressed by leadership of PALSP in a meeting held with Finance Minister Muhammad Aurangzeb and his team on Tuesday.
They said this measure will be most detrimental at a time when there is demand decline due to large-scale closure of construction activity in the country. This will result in loss of jobs, loss of government revenue and above all a drastic increase in import bill by one billion USD.
Steel industry seeks a 'viable and clear' tax policy
If the government opts for any reduction in tariffs on finished or semi-finished steel products (bars or billets), it will result in de-industrialisation and permanent closure of steel industry, as well as, massive unemployment in the country.
PALSP members highlighted the detrimental effects of tariff rationalisation on the steel industry's survival, with over 60% of steel units already closed and others operating at small fraction of their capacities.
PALSP proposed linking tariff rationalisation to key performance markers that reduce the cost of doing business (CoDB) and enhance global competitiveness. Steel industry urged the minister to consider postponing tariff rationalisation plan for a period of one year or until the industry's situation normalises.
PALSP members emphasised that with current high cost of doing business a 35% tariff is required for the local industry to maintain a level playing field compared to imports; furthermore, given the low-capacity utilisation in the current economic turned down a protection of at least 15% is further required. The total protection on imports of steel bars/ steel bars should not be less than 50% in any case.
PALSP members exhorted that at this point in time, any reduction in duties/ tariffs would open flood-gates to millions of tons of steel that is lying surplus in other countries who are leading steel producers, due to the ongoing tariffs wars between the leading economies of the world.
It was also highlighted that Pakistan's steel industry consumes nearly 4 billion kWh of electricity annually and contributes over Rs. 200 billion in government revenue. A decline or closure of industry will significantly reduce this contribution and simultaneously escalate capacity payments, placing additional strain on the energy sector and aggravating the circular debt crisis.
PALSP members highlighted that Pakistan's steel industry is one of the most efficient in the world. During the last 7 to 10 years, the domestic steel industry installed plants with technologies from Italy, Germany, China and Turkey; hence, making them optimum for cost effective. However, high CoDB, particularly sky high electricity rates, high gas rates and similarly high interest rates/ financial cost are the primary factors hindering its growth and export potential. Steel being an energy-intensive industry, where electricity accounts for 65% of production costs, is severely impacted by exorbitant electricity rates.
However, the Finance Minister acknowledged the need to address the issue high power and gas costs in the country. He also noted the global trend of tariff wars.
PALSP also urged the government to maintain present sales tax with exemption on local supplies of steel scrap to prevent fake & flying invoices and tax evasion. Industry said that any reversal of the policy, shall re-introduce menace of flying and fake invoices culture in the steel sector.
The meeting was attended by senior government officials and PALSP members, including Abbas Akberali, Patron-in-Chief of PALSP, Javaid Iqbal, Chairman of PALSP, Senator Nauman Wazir Khattak, Chairman FF Steel and Wajid Bukhari, Secretary General PALSP.
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