ISLAMABAD: Pakistan Association of Large Steel Producers (Flat Steel, Round Steel and long steel) and Cooking Oil & Ghee Industry have warned the government of permanent industry closure in case if extension of tax exemptions is given to industry located in erstwhile FATA/PATA any further.
The massive misuse of tax exemptions over the past six years has severely impacted the steel and ghee industries, among others, causing a revenue loss of hundreds of billions to the nation’s exchequer. Industry representatives have urged the government not to extend these unfair tax holidays to FATA/PATA, warning that it would devastate the rest of the country’s industries.
These views were expressed at a press conference by representatives from the Pakistan Association of Large Steel Producers, Pakistan Vanaspati Manufacturers Association, Pakistan Steel Line Pipe Industry Association, Aisha Steel, and International Steel Industries (ISL).
They highlighted that the tax exemptions, initially given for five years during the 2018 merger of FATA/PATA into Khyber Pakhtunkhwa, and later extended by another year until June 30, 2024, are being exploited by beneficiaries with political support to secure further extensions for their own interests, not for the common man in NMDs.
The federal government announced tax incentive package for FATA/ PATA industrial units’ w.e.f., July 01, 2019 to onwards for a period of five years. The following concessions were given:
- Complete exemption from income tax;
- Sales tax exemption both at local & import stage;
- Custom duty exemption at import stage on plant and machinery.
- Turn over tax exemption from annual tax returns, and
- With-holding income tax from local supplies.
After the announcement of such huge tax incentives, a mushroom growth of steel units was witnessed in the tax free area. These units were installed by rent-seekers from across the country, and not by the people of Fata/Pata. The package offered Rs.50 billion tax relief.
Though the idea was to facilitate the local population and to benefit them from cheap products. However, no benefit accrued to the people of Fata Pata. During the last six years, the entire production done in the tax fee area was diverted to tax areas. As a result, most of the industrial units working in Hattar industrial estate, Gadoon industrial estate and Hayatabad industrial estate, have shut down. Many steel units in Islamabad / Gujranwala/ Lahore have closed.
It is not understandable what benefit the federal government is getting by closing down tax paying units and promoting non-tax paying units. We believe it’s a policy of killing the tax paying units in the country. The federal government has given such a huge tax incentives to units in Fata Pata to enjoy these tax incentives and then go and kill the tax paying units. This policy is beyond our understanding.
The sales tax free raw materials are imported and sold in the market by these units (of Fata Pata) with -out any check and it has such huge profits that it’s easy to do in our country. These incentives are so lucrative that after the expiry of first five years of these incentives that now the industry pool up funds and give to political people in power to get the extension in period of these incentives. No one has any thought about industry which is closing down every month due to this unfair competition.
FATA/PATA is now an area which actually smuggles the non-tax paid products from non-tax to tax area. We have now smuggling within Pakistan.
The CPEC-related steel units which Chinese investors had planned to set up at Rashakai Economic Zone has now been presently shelved and discarded due to FATA/ PATA TAX incentives as there’s hardly 10 KM road distance between the two industrial areas.
One Chinese steel unit which was established by a Chinese company with local investor as JV project (joint venture) closed in 2021 due to FATA/ PATA steel units competition. The steel unit closed with two years of its operation. Its capacity was 500,000 tons per annum. It’s known as Afridi Steel Ltd.
The industry has now decided that if the federal government extends this facility for another one year, then the local tax paying industry will shut down its entire industry in protest. The local industry has decided to ‘get killed honorably in one go than being killed on daily basis’. If the government intends to force us to compete with non-tax paying units of Fata Pata then we cannot do so anymore.
The local industry representatives stated that extending these exemptions under political pressure would lead to the permanent closure of steel, ghee, and other linked industries, resulting in unemployment and massive revenue loss.
They criticized the FATA/PATA tax exemption policy, claiming it has already decimated the domestic steel and ghee industries in Punjab and Khyber Pakhtunkhwa, particularly in industrial estates like Hattar, Hayatabad, and Gadoon.
They pointed out that due to weak administrative controls, tax-free goods are being sold in settled areas, undercutting the tax-paying industry. It was revealed that 92% of steel and ghee produced in NMDs is smuggled to settled areas without paying sales tax, with raw materials imported tax-free under the guise of NMD units.
The representatives argued that this unfair policy has created a dual discriminatory two-tier tax system, crippling 98% of the local industry to benefit a mere 2% in FATA/PATA. They called for no further extension of these exemptions and demanded the recovery of evaded taxes, with those responsible held accountable.
