The Competition Commission of Pakistan (CCP) has issued a Policy Note to the Federal Board of Revenue (FBR) to eliminate discrimination meted out to some market players of the steel industry by imposing different sales tax rates and has recommended that this discrimination be removed by levying the same sales tax rate on all players.
The CCP took notice of a complaint filed by Madina Enterprises Limited (Madina Steel), which is using alternative energy, and alleged that the mechanism of charging sales tax by the FBR was discriminatory vis-à-vis units operating on electricity supplied by the DISCOs.
Looking into the matter, the commission sought the views of all the stakeholders. It was found that Madina Steel was charged General Sales Tax (GST) at 17% of ad valorem production simply on account of producing its own electricity through the use of renewable energy sources i.e., bagasse and rice husk, while those units acquiring electricity from DISCOs were charged GST at PKR 9 per unit of electricity consumed.
The CCP is of the view that the practice of implementing a different rate of sales tax on the players of the same industry based on the source of electricity they use is discriminatory as it distorts a level playing field, discourages new firms to enter into the market and prevents those who intend to innovate and invest in improving the efficiency of the production process from doing so, sets perverse incentives, leads to market stagnation, and prevents any cost savings from being passed on to the end consumer.
Similarly, a different method of calculating sales tax on establishments producing their own energy from alternative/renewable sources is against the spirit of the government’s policy wherein the production of electricity through these resources, on even a small scale, is to be encouraged by offering incentives to the producers.
The CCP has recommended that all the units in the steel sector be charged sales tax on the same basis rather than differentiating on the basis of the source of power that they use for production.
The Policy Note has been issued under Section 29 of the Competition Act, 2010, which empowers the CCP to review policy frameworks to foster competition in all spheres of economic and commercial activity and to recommend appropriate remedies to the federal and provincial governments.
