Higher taxes may raise steel production costs

Steel manufacturers yesterday urged the government to withdraw proposed increases in VAT and duties in the FY2026-27 national budget, warning that the measures could raise costs by up to Tk 12,000 per tonne, as most mills are operating at less than half capacity.

At a press conference at the National Press Club, Mohammed Jahangir Alam, president of the Bangladesh Steel Manufacturers Association (BSMA), said the industry is already under pressure from rising electricity tariffs, port charges, river dues, transport costs and other operating expenses.

He said electricity price increases alone have pushed production costs up by Tk 1,800 to Tk 2,000 per tonne, while higher logistics and other costs have added another Tk 3,000 to Tk 3,500 per tonne.

Alam added that the proposed budget measures -- including higher value-added tax (VAT) at the sales stage, increased VAT on locally sourced scrap, and additional duties on ferro-alloys, refractory materials and spare parts -- would raise costs by a further Tk 2,000 to Tk 2,500 per tonne.

“As a result, direct production costs could rise by Tk 5,000 to Tk 6,000 per tonne,” Alam said.

He said weak demand has further worsened the situation. According to BSMA, most mills are running at less than 50 percent of their installed capacity, increasing overheads, financing costs and other fixed expenses.

This underutilisation has created an additional indirect cost burden of Tk 5,000 to Tk 6,000 per tonne. Combined with higher taxes and duties, total cost increases could reach Tk 11,000 to Tk 12,000 per tonne.

Bangladesh’s annual steel demand is about 50 lakh tonnes, while installed production capacity exceeds 1 crore tonnes, leaving significant idle capacity, Alam said.

He welcomed some business-friendly measures in the proposed budget, including the repeal of certain minimum tax provisions, lower advance tax requirements for appeals and references, a reduction in withholding tax on interest payments for foreign loans from 20 percent to 10 percent, and a cut in tax deducted at source on electricity bills.

However, he said these benefits would be outweighed by the proposed increases in taxes and duties on steel-related inputs.

Alam added that boosting industrial output and accelerating public infrastructure projects would be a more effective way to increase government revenue than raising taxes on already struggling industries.

He said faster implementation of roads, bridges, flyovers, railways, ports, airports, economic zones, housing projects and power plants would increase steel demand and help mills use more of their installed capacity.

BSMA Secretary General Sumon Chowdhury said industries need policy support to expand production and create jobs.

“If factories operate at only 50 percent capacity, government revenue will not increase,” he said, adding that higher industrial output would generate more revenue even with a lower tax burden.

He also warned that weak industrial growth could limit job opportunities for the growing number of graduates entering the labour market each year.

The association urged the government to withdraw the proposed additional VAT, duties and taxes on steel-related inputs, keep the existing VAT structure on local scrap and sales, reduce the turnover tax rate to 0.6 percent from the proposed 1 percent, and speed up implementation of development projects.