FBR unearths multibillion rupees tax evasion in steel sector

KARACHI: The apex tax authority has unearthed multibillion rupees of tax evasion by some steel manufacturers who were found misusing a sales tax incentive scheme, sources said on Tuesday.
The sources said the Federal Board of Revenue (FBR) detected a gross misuse of its special sales tax regime by the steel sector that caused multibillion rupees losses to national exchequer.
Under the 58H of the Special Sales Tax Procedure Rules, 2007, steel- melter, steel re-roller and composite unite of steel melting – having a single electricity meter – are required to pay sales tax at the rate of nine rupees per unit of electricity consumed for the production of steel billets, ingots and mild steel products excluding stainless steel.
This payment will be considered as their final discharge of sales tax liability.
The steel sector falls under the special sales tax procedure and pays tax on the electricity consumption. In case of use of any other source of energy for producing goods, the steel units have to pay normal sales tax.
The sources said the FBR had conducted a random scrutiny of steel units to verify their electricity consumption pattern. The preliminary investigation revealed that the units had concealed around 90 percent of payable sales tax by using other sources of energy, including gas and burning tyres.
The sources said the FBR is intending to conduct comprehensive audit of steel industry across the country to realise the revenue either avoided or evaded.
The FBR sources said tax officials randomly conducted inspections of various production units, which were using gas and tyres for the production purpose.
Further scrutiny disclosed that the production on electricity was only 10 percent.
A tax department has already issued notices to Karachi-based steel units. However, the units maintained that since they fall the special procedure regime of sales tax they are paying their due liabilities through their electricity bills.
The sources said some of the units had contested that the industry had an option to use gas as a source of energy for their production.
The FBR officials, however, said such facility of gas as energy is allowed to steel melters and re-rollers, which are operating on self-generation basis.