Steel makers groan under tax burden

Multiple tax burdens and a one-sided tax implementation system are a great impediment to the growth of steel re-rolling industries in the country, said concerned industrialists at a webinar hosted by The Business Standard on Thursday.

According to the industry people, the sector has suffered losses amounting to Tk10,000 crore since the outbreak of the Covid-19 pandemic in March this year. Meanwhile, sales in the sector have dropped by 60 percent.

Pointing out that the current taxation system pulls back the growth of the industry, Aameir Alihussain, managing director of Bangladesh Steel Re-Rolling Mills Ltd (BSRM), said, "Even after the government's claim to have reduced tax rate, the sector is paying around 60-70 percent income tax."

"If a new company comes into the business how will it pay this amount of tax? This type of taxation system doesn't exist anywhere in the world. It seems the government is taking money forcefully. This discourages new investments," argued Aameir, also a vice-president of Bangladesh Steel Manufacturers Association (BSMA).

Mohammed Mohsin, vice-chairman of PHP Family, said imposing tax at multiple stages does not ensure a healthy environment for businesses. He recommended that the government adopts a single-stage taxation policy.  

"The government won't change the system on its own. As businessmen we have to take initiatives to put pressure on the government to change the system according to our requirement."

Md Shahidullah, managing director of Metrocem Ispat and secretary general of the BSMA, said advance income tax (AIT) and advance tax (AT) are the biggest barriers to an import-based industry like steel re-rolling.

He said, "The biggest problem for the sector is the tax burden. We urged the Finance Ministry and the National Board of Revenue to withdraw the AIT, but the authorities did not respond to our valid demand."

The industry association has been demanding that the value-added tax (VAT), advance tax, advance income tax (AIT) and regulatory tax should be lowered to help the sector regain lost business and overcome the shock of Covid-19 that bled the sector white.

The tax issue has been seen as a roadblock to recovery from shocks.

Steel manufacturers say total tax incidences, including VAT and advance import duty on scrap, amount to nearly Tk10,000 per tonne of MS billet or rod – a heavy burden for an industry to survive.

While a huge refundable fund has been lying with the National Board of Revenue, steelmakers are facing a working capital shortage and worrying about repayment of bank loans.

The revenue board is not refunding a huge amount of AIT of many companies, which is stuck for many years, the industry people said.

They added that the government has not refunded any advance income tax in the last 5-7 years. Some Tk2,000-3,000 crore refundable tax of the sector is stuck with the revenue board. 

"A one-sided system should not be there if we want a healthy economy of the country. In India, re-funds come to your account automatically. However, the case is totally different in our country," said Aameir Alihussain.

Marzanur Rahman, director of Ratanpur Steel Re-Rolling Mills Ltd (RSRM) and publicity director of the BSMA, said, "A cumulative burden comes to us in many ways – tax liabilities to sale in retail. Our money flow is getting obstructed in many places. The government is not completing many pending issues. One such issue is that we pay a 5 percent source tax while importing scraps." 

The concerned industrialists also demanded a change in the mindset of the tax department.

Aameir said, "We need a radical change in the mindset of the NBR and the finance ministry for implementing the income tax rules. Capability is there, but what is needed is that the all concerned show a more business-friendly attitude."

The present policy is not business friendly, he opined.

Emphasising the need for a change in the mindset of the tax authorities, Mohammed Mohsin said, "Change is a must. Otherwise, the next generation also will suffer like us."

The discussion titled "Steel Industry: Problems and prospects" was moderated by Sharier Khan, executive editor of The Business Standard.

The steel sector witnessed a double-digit growth over the past several years and local demands boomed until February riding on the mega development projects before the heavy industry entered into bad times in March.

With sales plummeting since then, the steel industry is running dry of cash.

Bangladesh's combined annual installed capacity of producing steel in 2018 was 8.5 million tonnes and the country consumed 7 million. The market size is around Tk45,000 crore. About 200 companies of this sector employ roughly 300,000 people.

While commenting on how the sector is going to recover the massive losses they have suffered due to the pandemic, Aameir Alihussain said the market situation started to improve after the withdrawal of the general holidays and the opening of the businesses from June. "However, the market is still 30-35% down than that in the normal time," he said.

"The sector would take minimum six-eight months to get back to its pre-pandemic state. A government-led expending spree is a must to expedite the growth and the spending has to be high and fast," he said. 

For example, new projects have to be approved immediately and the advance payment to the contractors has to be made fast. 

Aameir also urged the government to ensure a level-playing field for industries both inside and outside the economic zones in the country. 

Talking about the prospects of the steel re-rolling industry Md Shahidullah said the construction of the Padma Bridge will change the economic face of 21 southern districts. As massive development will take place in this region after the construction of the bridge, the use of steel will also increase significantly, he argued.

"Our steel is being exported to the seven north-eastern states of India, popularly known as "Seven Sisters of India". If the government facilitates us, there are more prospects for export to India," he further said.

The steel sector also has a huge prospect in the domestic market as massive infrastructural development is also taking place in the rural areas.

"We are supplying steel at competitive prices compared to our neighboring countries. Within 7-10 years, the present per capita steel consumption of 40 kg will increase to 70-75 kg. If the government eases the initial tax burden, it would get double revenue," Shahidullah said.

Regarding transshipment between Bangladesh and India, Aamir Alihosain said the government has to be careful that the cargos are not unloaded in Bangladesh. If that happens, the economy will be destroyed, he warned.

Demanding a reciprocal transit system, he said Bangladeshi industries face difficulties in exporting products to India. India has imposed many non-tariff barriers which make the local industries suffer. 

"As we are providing the transit facility and ensuring smooth transition of their goods, our government should talk with them so that they also provide such facilities to us," he added.