ISLAMABAD, May 18: The iron and steel productions units are not paying the income tax and general sales tax (GST) as per capacity though the sector plays a key role in the provision of raw material for capital formation and economic development in the country, says an official report.
This state of affairs invites further probe and research to find out the facts and the reasons behind the expected gap between the actual revenue potential and the actual tax paid by the iron and steel units. The possible reason may be the absence of audit by the sales tax and income tax department and weak enforcement.
The study was conducted jointly be Secretary Umar Wahid, and Second Secretary Naeem Ahmed of Fiscal Research and Statistics, CBR, to identify the reasons for the low revenue realisation from the sector and the poor compliance level at all categories of businesses in the sector.
The direct and indirect tax contribution made by the industry to the exchequer has been quite amazing. Whereas the collection from indirect taxes increased from Rs13.6 billion in fiscal year 2003-04 to Rs18.1 billion in 2004-05 and further going up to Rs23.7 billion in 2005-06, the direct tax receipts saw wild fluctuations during this period.
The collection increased from a paltry sum of Rs326 million in fiscal year 2003-04 to Rs3.9 billion in the next year, but declined to Rs748 million in 2005-06. In fact, industry’s contribution was only 0.32 per cent in total direct taxes.
To add insult to injury, out of total direct tax receipts, the Pakistan Steel Mills (PSM) alone has contributed Rs607 million or 81.1 percent of the total income tax paid by the sector. On the other hand, the remaining 598 manufacturing units other than PSM, all distributors, wholesalers, and retailers collectively could barely contribute Rs141 million on account of income tax
The GST (domestic) collection from iron and steel products has declined over the period of last three years to Rs1,976 million in 2005-06 against Rs3,540 million in 2003-04. The disaggregated position by GST registered persons shows that the major chunk (more than 95 per cent) of sales tax is being realised from the manufacturers.
Within manufacturers, the contribution of the PSM was 90 per cent in fiscal year 2003-04, 69 per cent in fiscal 2004-05, and 30 per cent in fiscal year 2005-06.
It is mandatory for the registered persons/units to file sales tax return each month, however, the compliance level in respect of Iron and Steel sector has not been satisfactory.
Notwithstanding the increase in registration, the overall compliance level has declined over the period of last three years from 78.7 per cent to 71.8 per cent. More importantly, the compliance level within each category including that of manufacturers has declined during the same period.
