Pakistan’s steel and ghee (cooking oil) industries are on the brink of collapse due to tax exemptions granted to businesses in the country’s newly merged districts (NMDs), formerly known as FATA and PATA. These exemptions, initially intended to last five years after the 2018 merger, have been extended for another year and are set to expire on June 30, 2024. However, industries in the rest of Pakistan are urging the government to not grant any further extensions.
Key Points of Contention:
- Loss of Revenue: The existing tax breaks are estimated to cost the Pakistani government over Rs. 100 billion annually.
- Unfair Competition: Local tax-paying businesses claim they cannot compete with the subsidized NMD industries.
- Misuse of Exemptions: There are allegations of businesses in the NMDs selling tax-exempt goods in settled areas, further harming established industries.
- Industry Closures: Steel mills in Hattar, Gadoon, and Hayatabad have already shut down due to the uneven playing field.
Industry Demands:
- End Tax Exemptions: The Pakistan Association of Large Steel Producers and the Pakistan Vanaspati Manufacturers Association are demanding a complete end to tax breaks for NMD businesses.
- Recover Lost Revenue: They also seek the recovery of evaded taxes from NMD businesses.
- Level Playing Field: The focus is on creating a fair and balanced tax system across the country.
Government’s Dilemma:
The government is caught between supporting the newly merged districts through tax breaks and protecting established industries in the rest of Pakistan. The upcoming budget (2024-25) will likely determine the future of these tax exemptions.
Impact and Conclusion:
The situation highlights the complexities of economic development in Pakistan. While promoting growth in the NMDs is important, it should not come at the expense of established industries. Finding a solution that fosters balanced development and discourages tax evasion will be crucial.
