Pakistan Budget FY20 : What Does it Mean for Steel Sector ?

SteelMint learned in recent conversations with industry participants that Pakistan’s government has declared its fiscal year 2020 budget yesterday.

In order to do away with the existing complex regime and realise the actual revenue potential of steel sector and support the industry, the government has proposed the restoration of the normal regime for steel sector.

-- Change in taxation mode - Special regime of taxation of the whole of the steel sector is being abolished. The special procedure may be scrapped and Billets, ingots, bars, ship plates and other long profiles be brought in the normal tax regime. As per sources, this is in favour of steel mills and it is being expected that steel melters can work in smoother way hereafter.

-- No exemption from FED for tribal areas - Billets, ingots, bars, ship plates and other long profiles may be subjected to FED at 17% in sales tax mode in lieu of sales tax for the reason that there is no exemption from FED for tribal areas. However, sales tax payable on these products at the manufacturing and import stage may be exempted.

A leading steelmaker shared with SteelMint that “with the outcome of the budget, it creates a level of playing field and many anomalies have been removed this may result in a hike in steel prices but more clarity is awaited at the moment.”

-- Minimum benchmarks for electricity consumption and production - Minimum benchmarks are being set for electricity consumption and production.

One must note that earlier to these changes, sales tax from steel sector was being collected through electricity bills at Rs. 13 per KWH. Imported scrap used in making billets was subject to sales tax at Rs. 5,600/MT which was adjustable. For ship-breakers, ships imported for breaking were exempt from payment of sales tax. However, for ship-plates obtained from breaking of ship, sales tax was payable at Rs. 9300 per MT. Further, steel industry set up in tribal areas was exempt from payment of sales tax and steel units in other areas are not able to compete with them.

-- Changes in customs duty on steel scrap - Exemption of customs duty on imported ferrous scrap likely support ferrous scrap imports in the country. It is estimated that Pakistan imports around 5 MnT ferrous scrap per year.

SteelMint in conversation with Pakistan's leading scrap trader - Better Deals learned that customs duty on steel scrap which was earlier at 3% has been removed in the new budget. However Additional Customs duty has been increased from the previous 2% to current 4%. Although final factual confirmation is still to be understood, however as per indications steel prices may move up with the recently announced budget.

source: SteelMint