Steel Manufacturing Taxes

and brief economic overview 2017

Pakistan’s Economic Highlights
Country Specifications Strategic Location

Between China and India with easy access to

Location
Middle East and Central Asia

Population 207,774,520
PSX Performance 173% over the last 05 years
Nominal GDP USD 303 Billion
PPP GDP USD 1 Trillion
GDP PPP Per Capita Income USD 5,400
Credit Ratings B3 Stable (Moody’s)

Key Economic Highlights

Investment under Low Inflation Rate of • Pakistan holds an important geostrategic position, bordering two potential
42 Years’ Low Interest economic superpowers and is in close proximity to Russia and oil rich
CPEC - Worth over Just 4.4% as at
Rate of 6.00% Middle-East and Central Asian states
USD 72 BN January 2018

• This strategic advantage alone makes Pakistan a market place with immense
Forex Reserves at a opportunities
CPEC to transform
record high of USD Upgrade in S&P’s
Pakistan into a major • The Geo-Strategic location of Pakistan is such, that, at one hand it provides
23.5 BN in November Ratings from B- to B
Economic Hub logistic support to landlocked regions like Afghanistan & southern provinces
2016
of China
KSE100 Index touched • Other Central Asian States also have a nearest land route to warm waters for
3rd fastest growing Strong urbanization,
a record high of their trade with Middle East & other continents of the world
economy as per IMF currently standing at
53,000 points in June
PPP methodology 39.7%
2017
Macroeconomic Indicators in favor of Steel sector
Sustainable GDP growth of Pakistan beating growth of Emerging Economies GDP Composition signifying Pakistan as a balanced Economy

8.00
7.00
6.00 Agriculture,
5.00
Data in %age 4.00 19.53%
3.00
2.00
1.00 Industrial,
- Services,
2009 2010 2011 2012 2013 2014 2015 2016 2017 20.88%
59.59%
Pakistan 0.40 2.60 3.60 3.80 3.70 4.10 4.00 4.70 5.30
Emerging & Developing
2.90 7.40 6.30 5.40 5.10 4.70 4.20 4.10 4.50
Economies

Increasing GDP/ Capita – improving life style of Pakistani (Figures in RMB) Foreign Direct Investment (Figures in Billion RMB’)

12,000 16

10,000 14
12
8,000
10
6,000 8
4,000 6
10,046

4
7,856

8,140

8,226

8,566

9,336

9,441

2,000
2
-
-
2011 2012 2013 2014 2015 2016 2017
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Exponential Growth Sectors of Pakistan

Retail Sector growing at 13% year on

Real Estate and Housing Sector year along with construction of
Pakistan currently growing at 35% multistoried shopping malls across all
year on year basis. major cities, 3.4 MN Sq ft of Asia
biggest mall in Karachi

Exponential year of year growth in the

auto sector with new Asian and Industrial growth pacing up at 5% per
European automakers launching in annum year on year basis
Pakistan

$72 Billion dollar ongoing

Many new Special economic and
investments primarily in infrastructure
Industrial parks beginning
and energy sectors
construction
 Taxes on steel industry of Pakistan
 As of the 2018 budget Sales tax of Rs.13/unit of electricity consumed is applied to the manufacture of steel.
 Withholding tax rate on import of re-meltable steel is 1% for filers.
 Withholding tax of Rs.1 per unit of electricity consumed for the production of steel billets, ingots and mild steel excluding
stainless steel by steel smelters, steel re-rollers, composite steel units.
 0.1% withholding tax for filers and 0.25% withholding tax for non-filers on sales to distributors, dealers and wholesalers by
manufacturers and commercial importers.
 0.5% withholding tax on sales to retailers & wholesalers by manufacturers, distributors, dealers, wholesalers or commercial
importers.

Scenario:
Suppose 790 units of electricity are used to manufacture one metric ton of steel then the sales tax = 790*13 =
Rs.10,270($85 USD) is the sales tax to be paid on one metric ton of steel.
Note: On selling to distributors or wholesalers sales tax will not be paid again by the manufacturer and therefore, there is
no double taxation.
 Adjustment of Sales tax paid

 Federal Board of Revenue (FBR) has allowed adjustment of sales tax paid on customs clearance of re-meltable iron and steel
scrap. In a Sales Tax General Order (STGO) the FBR(Federal Board of revenue) issued procedure for adjustment by steel
smelters of sales tax paid at import stage on the specified categories of re-meltable iron and steel scrap, namely:

 The adjustment procedures under sub-rule (2C) of rule 58H of the Sales Tax Special Procedures Rulers, 2007 shall be
applicable only to such steel melting units (hereinafter referred to as “entitled steel smelters”) which are paying sales tax
through their electricity bills in the manner prescribed in sub-rule(2) of rule 58H ibid. Steel mills operated by sugar mills or
other persons using self- generated electricity under rule 58H of the said Rules and steel melting and rerolling units which have
opted to pay sales tax on ad valorem basis under rule 58MA ibid shall not be entitled to this adjustment procedures.
Adjustment shall be admissible/allowed only on import of re-meltable iron and steel scraps under PCT Headings 7204.3000,
7204.4100 and 7204.4990 (hereinafter referred to as “specified scrap categories”). The adjustment shall be allowed only to the
extent of sales tax, paid at import stage on the specified scrap categories allowing 5 percent wastage.

Pakistan Steel Melters Association shall provide a list of entitled steel melters having single electricity meter including composite
units having both remelting and rerolling facility. The list shall include the particulars such as NTN(National Taxation
number)/STRN(Sales Tax Registration Number), electricity consumer number, name of DISCO(Power Distribution Companies),
composite or otherwise, etc.
 Subsequent additions to the list shall be provided by the Association in the same manner. Such lists shall be referred to
concerned RTOs/LTUs for post verification by the Board to identify the nature of the unit i.e. whether composite or standalone
steel melters.
An entitled steel melter whose name is available in the list referred in para-3 3 above, using his e-FBR Login –ID shall select
the input GDs of specified scrap categories against which adjustment is sought indicating the amount of adjustment against
each .
The system shall print an adjustment note indicating sales tax credit available for adjustment. The note shall be presented to
relevant DISCO which shall verify the note from e-FBR portal. It shall then allow adjustment/deduction from the sales tax
charged through the electricity bill for a particular month against the adjustment note.

 DISCOs shall maintain account of adjustment allowed against a particular adjustment note and the balance shall be carried
forward to the subsequent month for adjustment in similar manner.

 When the credit balance available in the adjustment note is exhausted or near exhaustion, the entitled steel smelters may obtain
another adjustment note against subsequent imports in the manner indicated above.
Copies of adjustment notes shall be made available to respective RTOs/LTUs in the system for monitoring purpose.

 FBR’s computerized system shall maintain proper record of GDs against which adjustment has been allowed.
Federal Board of Revenue (FBR) has imposed regulatory duty up to 35 percent on import of various steel products in order
safeguard local industry.
The regulatory duty up to 35 percent imposed through SRO 505(I)/2017 dated June 21 on import of following steel products:
(72.29) Wire of other alloy steel: 35 percent
(7204.1010) re-rollable: 5 percent
(7204.1090) other: 5 percent
(7204.2100) of stainless steel: 5 percent
(7204.2900) other: 5 percent
(7204.3000) Waste and scrap of tinned iron or steel: 5 percent
(7204.4100) Turnings, shavings, chips, milling waste, sawdust, filings, trimmings and stampings, whether or not in bundles: 5
percent
(7204.4910) Re-rollable: 5 percent
(7204.4930) Waste and scrap of auto parts in pressed bundle condition: 5 percent
(7204.4940) Waste and scrap of Compressor: 5 percent
(7204.4990) Other: 5 percent
(72.07) Semi-finished products of iron or non-alloy steel: 15 percent
(72.08) Flat-rolled products of iron or non-alloy steel, of a width of 600 mm or more, hot – rolled, not clad, plated or coated: 12.5
percent
(72.09) Flat – rolled products of iron or non-alloy steel, of a width of 600 mm or more, cold – rolled (cold-reduced), not clad,
plated or coated: 5 percent
(72.10) Flat – rolled products of iron or non-alloy steel, of a width of 600 mm or more, clad, plated or coated: 5 percent
(72.13) Bars and rods, hot – rolled, in irregularly wound coils, of iron or non-alloy steel: 30 percent
(72.14) Other bars and rods of iron or non-alloy steel, not further worked that forged, hot-rolled, hot drawn or hot-extruded, but
including those twisted after rolling: 30 percent
(72.15) Other bars and rods of iron or non-alloy steel: 30 percent
(72.16) Angles, shapes and sections of iron or non-alloy steel: 30 percent
(72.17) Wire of iron or non-alloy steel: 30 percent
(72.24) Other alloy steel in ingots or other primary forms semi-finished products of other alloy steel: 15 percent
(72.25) Flat rolled products of other alloy steel, of a width of 600 mm or more: 17.5 percent
(72.26) Flat-rolled products of other alloy steel, of a width of less than 600 mm: 17.5 percent
(72.27) Bars and rods, not rolled, in irregularly wound coils, of other alloy steel: 25 percent
(72.28) Other bars and rods of other alloy steel angles, shapes and sections, of other alloy steel hollow drill bars and rods, of alloy
or non-alloy steel: 30 percent
(73.03) Tubes, pipes and hollow profiles, of cast iron: 12.5 percent
(73.05) Other tubes and pipes (for examples, welded, riveted or similarly closed), having circular cross-sections, the external
diameter of which exceeds 406.4 mm, of iron or steel: 17.5 percent
(73.06) Other tubes, pipes and hollow profiles (for example, open seam or welded, riveted or similarly closed), of iron or steel:
12.5 percent
(73.12) Standard wire, ropes, cables, plaited bands, slings and the like, or iron or steel, not electrically insulated: 25 percent
(73.18) Screws, bolts, nuts, coach screws hooks, rivets, cotters, cotter-pins, washers (including spring washers) and similar, article,
of iron or steel: 25 percent
Thank You