ISLAMABAD, 21 JUNE, 2016: 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 rate and has recommended that this discrimination be removed by levying same sales tax rate on all players.

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 Federal Board of Revenue (FBR) was discriminatory vis-à-vis units operating on electricity supplied by DISCOs. Looking into the matter the Commission sought the views of the all 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 & rice husk, while those units acquiring electricity from DISCOs were charged GST at PKR 9 per unit of electricity consumed.

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 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.

CCP has recommended that all units in the steel sector be charged sales tax on the same basis rather than differentiating on the source of power they use for production.

The Policy Note has been issued under Section 29 of the Competition Act, 2010, which empowers 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.