After weeks of deliberation, the Pakistan Government in its Annual Budget 2018, has finalized a steep rise in power tariff for the steel sector. The move is expected to bring about a considerable rise in steel prices in Pakistan. Similarly, the rate of Sales Tax for other allied steel industries including ship breaking and re-rolling has also been rationalized.
According to information, the Government in Pakistan has decided to remove the concession provided to steel sector in the form of sales tax rebate on power tariff. This will essentially increase the power tariff from PKR 10.5 levied presently to PKR 13, a direct increase of about 24%. An amendment to the Sales Tax Special Procedures Rules, 2007 has been made to bring about the change in tariff.
It may be noted here that around 800 units of power is required to produce 1 tonne of steel and a PKR 2.5/t increase in power cost can likely send steel prices up by around PKR 2,000/tonne.
On the other hand, the Country’s recent annual budget has reduced Customs Duty on import of coal from 5% to 3%. This reduction is likely to prove a major boon for the cement and power industry but the impact on steel prices would be nominal as Pakistan presently does not have any operational blast furnaces and produces most of its steel through EAF or IF route. Under these changes import of coal is also likely to go up to some extent.
Apart from this, an increase of additional customs duty from 1% to 2% on scrap has also noted under this Budget. There will be Customs Duty at 3%, Additional Customs Duty at 2% (which was 1% earlier) and Regulatory Duty at 5% charged extra on the import of scrap. According to participants, this will impact the import cost of ferrous scrap making it costlier.
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