Ship breakers seek tax reforms to protect Pakistan’s recycling industry

The Pakistan Ship Breakers Association (PSBA) has urged the government to introduce a series of tariff and tax reforms in the upcoming federal budget, warning that the country’s ship recycling industry is struggling to remain competitive amid rising imports of steel scrap and widespread tax evasion in the steel sector.

In budget proposals submitted to the government, the association said the ship breaking and recycling industry in Gadani, Balochistan, directly employs more than 25,000 skilled and unskilled workers and supports up to 500,000 jobs nationwide during peak activity. The industry also contributes more than PKR 16 billion annually to the federal government and generates substantial revenue for the provincial government.

The association called for higher customs duties and regulatory taxes on imported re-rollable scrap, arguing that cheap, low-grade imports are undermining locally produced ship plates and re-rollable scrap generated by ship recycling yards.

According to the PSBA, restricting such imports would help sustain the domestic ship breaking industry, preserve employment opportunities in Balochistan, and support downstream steel industries across the country.

The association also urged authorities to tighten controls on steel scrap and steel product imports through land routes, alleging that tax evasion worth billions of rupees is occurring through the misdeclaration of goods, under-invoicing, and misuse of industrial import concessions.

It said some importers are clearing goods under incorrect tariff classifications and using the names of industrial entities to avoid paying taxes while claiming sales tax input adjustments to which they are not entitled.

To address the issue, the PSBA proposed banning steel melting units and furnaces from importing re-rollable scrap, secondary hot-rolled plates, and steel profiles under specific tariff codes. The association argued that such materials are not genuine raw materials for melting furnaces and are often diverted to re-rolling mills after being imported under concessional duty structures.

The group said the practice creates unfair competition for tax-compliant industries and results in significant revenue losses for the government.

On taxation, the association requested amendments to sales tax regulations governing ship breaking activities. It said the industry currently pays sales tax based on the assumption that 85% of its output consists of re-rollable scrap, despite producing both re-rollable and heavy melting scrap.

The PSBA proposed recognizing its production mix as 50% re-rollable scrap and 35% heavy melting scrap, arguing that the change would create a more equitable tax assessment system without reducing overall tax collections.

The association also sought full sales tax refunds on exports of scrap generated through ship recycling operations. It said global steel producers are increasingly shifting from iron ore to recycled steel scrap to reduce carbon emissions, creating new export opportunities for ship recycling industries worldwide.

According to the association, allowing sales tax refunds on exported scrap would improve the competitiveness of Pakistani exporters, help generate foreign exchange earnings, attract new investment, and create additional employment opportunities in Gadani and related industries.

The PSBA further urged the government to strictly monitor vessels imported for dismantling to prevent the entry of ships subject to sanctions imposed by the United States, the United Nations, or the European Union.

It warned that processing sanctioned vessels could expose Pakistan, its banking sector, and the ship recycling industry to secondary sanctions and undermine efforts to improve compliance with international standards.

The association noted that local ship recyclers are investing heavily to comply with the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, a move aimed at restoring Pakistan’s position in the global ship recycling market.

Describing ship recycling as a major source of “green steel,” the PSBA said the industry helps reduce carbon emissions and could enable Pakistan to benefit from emerging carbon credit markets while supporting sustainable industrial development.