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10-year tax holiday for steel industry proposed

ISLAMABAD (May 24 2007): The Ministry of Industries and Production has proposed the government the new duty and tax regime for steel industry, seeking 10 years tax holiday for increasing domestic production and catch upward trend in steel prices.

It demanded 15 percent reduction in international trade price (ITP) value of scrap and billets to catch upward trend in steel prices. It also recommended reduction in withholding tax for commercial importers of steel scrap and billets rates from 6 percent to 2 percent as a final liability.

The ministry stressed the need of regulation of import of low quality half moon cut pipe scrap to provide even playing field for ship breaking industry.

Other recommendations included soft term loans for acquiring appropriate machinery/technologies for up gradation, zero rating customs duty and sales tax on import of high capacity electric furnaces and other related machinery, facilitation and priority in 132KV electricity connections for furnaces and grid synchronisation.

It also suggested facilitation in setting up of captive power plants for furnace and steel re-rolling units. The ministry recommended equal rate of custom duty on import of re-rollable scrap and billets.

The ministry said smuggling of scrap should be discouraged by converting the provision of payment of sales tax on deemed payment basis to actual payment basis. In order to provide a level playing field for the entire value chain and segments of industry and to reduce the burden of tax on prices, it suggested reduction in rate of sales tax to 5 percent for a period of 5 years.

It said a level playing will encourage fresh investments in steel industry to have maximum steel production. It also suggested maintaining of existing cascading duty structure for steel sector.

The ministry noted that rising Chinese demand of scrap/billet steel was the actual cause of high pries of steel world-wide and Pakistan was no exception to it. It said China's share in global market rose to 33.8 percent as its production increased by 17.7 percent with net 418.8 million tons total annual production in 2006. It listed a number of other factors, which contributed to surge in international steel prices. These were China's withdrawal of export rebate in January, 2007 on export of billets to encourage export of bars, BAO Steel of China's agreements with leading global iron ore producers in December 2006, pushing iron ore price up by 9.5 percent in 2007.

The ministry also suggested long-term measures to minimise vulnerability of domestic market due to high steel prices in the international market. These included enhancement of competitiveness, adoption of energy efficient process and technologies, increase individual capacities minimise wastage and over and above assure quality.

The ministry called for effective utilisation of local iron ore resources. It said Pakistan has approximately one billion of tons of iron ore reserves and their effective utilisation may fulfil iron and steel demand for 30-35 years. It also calls for enhancement of Pakistan Steel Mills Corporation (PSMC) production to increase its share in billet supply to the local market.

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