ISLAMABAD: The Federal Board of Revenue (FBR) has started a stocktaking drive in the steel sector to verify the reports that re-rollers/melting furnaces are involved in tax evasion through underreporting of production.
Sources told that FBR initiated scrutiny of production in steel sector in order to plug revenue leakages. The FBR launched the scrutiny process on the complaint of steel melters association that unregistered business units were evading taxes on electricity consumption.
The apex tax authority issued an official note to all the tax offices regarding input adjustment in the steel sector especially after the changes brought in the sales tax laws through the Finance Act 2019.
The FBR said the Finance Act 2019 withdrew the Special Procedural Rules 2007 and now the steel sector is required to charge and pay federal excise duty in sales tax mode at standard rate of 17 percent from July 1, 2019. The normal tax of 17 percent ad valorem is levied on supply of steel billets, ingots, ship plates, bars and other long re-rolled products.
Sources in Regional Tax Office Karachi said the special tax treatment was abolished for steel sector through the Finance Act 2019 to curb tax evasion.
The FBR further informed the tax offices that it allowed input adjustment on closing stocks as on June 30, 2019, subject to certain conditions, through a sales tax general order (105/2019) issued last month.
The FBR directed the tax offices to provide information of inputs utilised in production of steel and supply on month-wise basis from July 1, 2019.
Previously, Pakistan Steel Melters Association (PSMA) pointed out at huge tax evasion in the steel sector. The association said some re-rolling mills were running on authorised electricity connections on which the sales tax was calculated on the basis of electricity units consumed.
The association, however, said these companies are running unauthorised furnaces on authorised electricity connections and thus evading ‘huge’ amount of sales tax. PSMA said such re-rollers are underreporting their production to evade taxes. It said a large number of dummy re-rollers, which are not members of the association, is availing the facility.
“All those re-rolling mills running on B-2 electricity connections should be verified to know whether or not they are members of the association,” it said in a letter to Member Inland Revenue (Operations) last month. The association further said not a single member has B-2 electricity connection.