The housing sector in the country is going to feel the maximum heat of taxation measures announced by the government in budget 2014-15, as steel prices would go up by Rs3,720 per ton.
As per budget announcement, the sales tax per unit of electricity, consumed to make one ton of steel, has been increased by 75% from Rs4 per unit to Rs7 per unit.
Adding more pressure on prices, the government has further announced a 1% import duty on scrap. Majority of the steel manufacturers in Pakistan are importing scrap and the increase in customs duty will further affect the product price. The government has also increased the sales tax on scrap from 1800rps/ton to 5600rps/ton, representing an increase of over 300%. Moreover, international scrap prices (raw material) has shot up in the last quarter as shredded scrap, the benchmark used for steel makers, has increase from $380/ton CNF to $415/ton CNF, adding further pressures on steel manufacturers cost of production.
Pakistan Steel Melters Association chairman Mian Saeed, while talking to The Nation, has said that several issues are not clear yet, however according to budget speech, the enhancement in sales tax from Rs4 per unit to Rs7 per unit on electricity bills and raise other taxes will increase cost of steel, used in construction, by Rs3,720 per ton while rate of billets will be escalated by Rs3,200 per ton, leading to sharp rise in construction cost, as steel is the major part of construction material.
He informed that the FBR had consulted the steel industry before taking decision of upward revision in tax on steel manufacturing.
Mian Saeed said that the budgetary measures have drastically increased the cost of doing business, making industry uncompetitive, which will ultimately kill the very source of revenues which run the wheels of the government. The steel industry's representative body leader observed that Rs3,720 per ton increment in the steel prices would be a minimum cost pass over that the consumers are to feel after the budget increment.
Adding further burden to manufacturers, the Government has also levied GIDC on Sui gas, a key ingredient used to Reheat billets for rerolling.
Mian Saeed said that gas loadshedding had also increased the cost of production and this further increase of power tariff would badly affect the steel manufacturing industry in Pakistan, and consumers at large would be burdened, especially construction cost would increase substantially in the country.
Industry experts are of the view that the increase in steel prices will adversely affect construction costs and will further burden the end user due to higher cost of living. Steel prices are fundamental to construction costs and government must support steel manufacturers to ensure economical housing projects.