Pakistan’s major steel manufacturers are urging the federal government to scrap proposals that would restore sweeping tax exemptions for steel producers operating in the former FATA and PATA regions.
In a strongly worded letter sent to Prime Minister Shehbaz Sharif and senior economic policymakers, the Pakistan Association of Large Steel Producers (PALSP) warned that reintroducing these incentives would undercut formal-sector manufacturers and derail efforts to stabilize Pakistan’s struggling industrial base.
Industry Says Exemptions Hurt Competition, Not Help Recovery
The exemptions, originally introduced years ago to stimulate recovery in areas ravaged by conflict, eliminated income tax, sales tax, customs duties on machinery imports, and various withholding taxes. While designed as temporary relief, PALSP argues they were extended far beyond their intended purpose, allowing products from these tax-free zones to flow into settled markets without paying dues.
“This has created a structural imbalance in the steel sector,” PALSP stated, noting that documented producers in cities like Lahore, Islamabad, and Faisalabad have been pushed to the brink by unfair competition.
Closures, Investment Freeze Highlight Economic Toll
Data shared by the association paints a grim picture: between 2018 and 2024, dozens of registered steel plants either shut down or suspended operations. In June 2024 alone, 16 units in Hattar and eight in Islamabad closed, while factories in Gadoon and Hayatabad also halted production.
PALSP added that investor confidence has eroded, citing the postponement of Pakistan’s first Chinese private-sector steel investment in the Rashakai Special Economic Zone. Investors reportedly raised concerns over “unjustified and prolonged” tax concessions granted to producers in the former FATA and PATA territories.
Rs500 Billion in Tax Breaks, Little Regional Uplift
The association claims that despite over Rs500 billion in tax exemptions over the past seven years, little of this relief has translated into development for the targeted regions. Meanwhile, formal sector companies have lost thousands of jobs and billions in revenue.
Push for Full Withdrawal in Upcoming Budget
The federal budget for FY2025-26 has already begun rolling back these privileges, introducing a phased approach that will impose a 10% sales tax on steel products starting July 2025. PALSP, however, is calling for a complete end to the scheme, arguing that gradual withdrawal will not be enough to restore market balance.
“The formal industry cannot compete with untaxed players indefinitely,” the letter warned. “For fiscal reforms and industrial revival to succeed, exemptions must end once and for all.”
