Steel manufacturers aggrieved about cold shoulder
The country's steel manufacturers will likely find it increasingly difficult to recover from the ongoing coronavirus pandemic as the government did not include their demands in the budget for fiscal 2020-21, said the Bangladesh Steel Manufacturers Association.
The sector sought for reductions in value-added tax (VAT), advance tax, advance income tax and regulatory tax so that prices would decline at the consumer level, said BSMA Chairman Manwar Hossain.
The price of mild steel (MS) rods decreased 8 per cent to Tk 58,000 per tonne during the last fiscal year, according to market data from the Trading Corporation of Bangladesh.
Following the prolonged shutdown of steel processing mills and lack of sales during the two-month general shutdown that ended on May 30, recovering the losses made during this period would be challenging due to the current price of MS rods.
"That is why we made these demands. But the government behaved insensitively in a crucial time by not addressing our issues," Hossain said.
The price of MS products will probably increase soon and this could have an impact on almost all of the other industries.
Steel production is a volumetric industry with high sale volumes but low profit.
During the March and April, the steel sector lost a net value of about Tk 3,000 crore by paying workers' wages and other fixed expenditures.
Millers have to pay Tk 1,000 to Tk 2,000 as VAT deduction at source (VDS) for each tonne of MS billets or rods and this is not logical, he added.
If the existing VAT and other taxes on steel production are left in place amid the coronavirus crisis, it may hold back the steady growth made by the sector so far.
This could also harm the related industries such as construction and housing, leading to a disruption in the country's development, the BSMA chairman said.
The current VAT charged on the sale of scrap metal is Tk 1,750 to Tk 300 per tonne, steel billets Tk 2,000 to Tk 450 and rod Tk 2,000 to Tk 450.
Manufacturers also have to pay 5 per cent advance tax on the import of raw materials and this only creates additional pressure on generating working capital.
But although the government decided to decrease advance tax to 4 per cent in the new budget, manufacturers want a full withdrawal of the duty.
To secure enough funds to continue operations, many manufacturers turn to the banks, further deepening the sector's liquidity crisis, Hossain said.
The BSMA also sought for removal of the 5 per cent advance income tax placed on the import of various production-related materials for the next fiscal year.
If this situation prevails until December, losses in the steel industry could run north of Tk 15,000 crore, said Hossain, also the managing director of the Anwar Group of Industries.
From raw materials to spare parts and capital machinery, steel manufacturers have been unable to bring in any of these much-needed equipment due to the virtual standstill of all economic activities across the world, he said, adding that there are about eight million empty containers stranded at the Chinese ports alone.
Millers are suffering from a serious liquidity crisis as they could not make enough revenue in the past three months, said Tapan Sengupta, deputy managing director at BSRM, the country's biggest steel producer.
With millers barely able to meet operational expenses, it seems unfair to charge advance tax, advance income tax, VDS and the like.
"So, the government should provide some incentive by postponing some of these taxes to boost the sector."
The steel sector nurtures all other sectors and creates about one lakh opportunities for direct employment and seven lakh for indirect employment.
The infrastructure and construction sectors completely depend on the steel industry, which plays a vital role in the economy's development, Sengupta said.
The National Board of Revenue (NBR) has held back about Tk 1,000 crore from his company as refundable advance tax for several years now.
"The NBR has not returned the money yet and this has created a capital shortage," he added.
The millers are frustrated by the government's reluctance to include even a single demand in the new budget, said Mohammed Shahidullah, secretary-general of the BSMA.
Besides, the sector will need around two years to recover from the losses made in this time.
The country has about 40 active steel manufacturers, who altogether can manufacture nine million tonnes of steel annually.
Of them, Abul Khair Steel, GPH Steel, BSRM and KSRM meet more than half the yearly demand of about eight million tonnes.
Although the steel industry is not export-oriented, the government should give it the same importance as the garment sector, Shahidullah said.
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