KARACHI, May 21: The higher incidence of sales tax and duties has hard hit the shipbreaking industry, which in good old days had been catering to needs of the local steel re-rolling industry and the general consumers of steel products.

According to figures released by the Pakistan Ship Breakers’ Association (PSBA), 36 old ships were imported at Gadani for scrapping with a total tonnage of 0.215 million tons in 2001-2002 as compared to 39 ships with a total tonnage of 0.774 million tons in July-May 2002-2003, showing a fall of 72 per cent in tonnage.

“The role of local ship-breaking industry along with the cement industry has assumed new dimensions after the reconstruction work has started in Afghanistan,” claims the chairman PSBA Chaudhary Afzal Majeed, who has suggested that it is high time the government rationalized the taxation system in the new budget to make it more competitive.

Ship-breaking is a labour intensive industry, and once it was flourishing as a most viable investment avenue when it used to enjoy official patronage and a number of incentives. In normal business conditions, it employees between 30,000 to 40,000 skilled and unskilled labour.

“We have standing ship dismantling offers from Japan, South Korea and China because of attractively lower overheads and dismantling costs,” the PSBA chief said. “But change in official policies scared them away,” he added.

India, Sri Lanka and Dubai now has become a hub of ship breaking as the foreign clients have turned to them, he maintained.

“The flourishing Gadani shipyards on the sprawling coast of Balochistan has already passed through a difficult time and there are many who once saw a deserted place but its revival has again raised hopes for a better future,” Chaudhary Afzal Majeed said.

There is a lot of foreign exchange savings on import account as shipment of scrap from Dubai or the Central Asian states have virtually been stopped.

Some leading ship breakers claim that they are already in touch with foreign parties and are sure that they could fetch some good business as the labour costs are still cheaper here than our competitors.

However, the chairman PSBA said if the government did not rationalize taxes in the forthcoming budget the ship breaking industry would suffer further setback. He said in India Rs1,200 per ton is being charged as full and final tax liability. Whereas in Pakistan, he said, the total impact of taxes and duties comes to around 40 to 45 per cent.

The government is presently charging 20 per cent sales tax on ship breaking industry, with 6 per cent income tax and 10 per cent customs duty. Chaudhary Afzal Majeed asked the government to reduce these taxes if it wants the ship breaking industry to revive.

He said old ships for dismantling are being quoted at around $200 per ton but high incidence of taxes push the cost so high that the industry does not meet its cost.