“Production can be improved by removing VAT”
CEO of Navard & Steel Production Co:

“Production can be improved by removing VAT”

“VAT has hurt producers and many market participants are not willing to go back to production due to tax regulations. Removing VAT can boost production and bring many factories back into operation,” said Taghi Shahrestani, CEO of Navard & Steel Production Co.

In an interview with FelezatOnline, Shahrestani said: “The company produces only HRC sheets. The difference between our products and those of Mobarakeh is that the latter’s are offered in coils, while ours are sheets. We currently have a capacity of 140 thousand tonnes; we used over 70% of our capacity in the first seven months of the year to produce 58 thousand tonnes of slabs and 76 thousand tonnes of HRC sheets.

“Our sheets come in widths of up to 1.25m, lengths of up to 6m, and thicknesses ranging 8-30mm. These are mostly used in construction. Our products can mainly be found in the Shadabad Steel Market and among major distributors of steel products. We are a popular brand in the market and our thick sheets have major fans.”

He pointed out that the company’s products are produced on an order basis: “We produce various types and dimensions of sheets based on customer orders. Seasons affect the construction industry, which in turn affects our production. Sheets 10-12mm thick constitute the largest share of our products. Grade ST37 construction sheets account for 98% of our products.”

Raw material procurement is a challenge

Regarding raw materials, Shahrestani said: “We have furnaces to produce steel, so scrap is the raw material of choice. We procure scrap from distributors or car scrappers. The scrap is melted into slabs in furnaces, and then rolled into sheets in the rolling unit.”

He referred to the market conditions this year and last: “With these market conditions and the restrictions, we can’t directly buy scrap; we have to procure our raw materials through middlemen. We have had a number of problems as a result over the years. As the exchange rates spiked last year, the price of scrap and slabs jumped; early in 1397, scrap was 1.5 thousand tomans per kg, but in mid-summer it jumped as high as 3.7 thousand tomans per kg. Prices of other raw materials and consumables such as refractories and ferroalloys went up as well. Moreover, slab producers weren’t delivering our orders. Mobarakeh, one of our major sources of slabs, deterred delivering our order for four months, after which it increased the price by one thousand tomans per kg. As a result of price changes in just four months, the company suffered three billion tomans in losses.”

According to the CEO, another problem in the market is that the government tries to keep prices down: “In an unsound policy, the government dictated that suppliers of sheets to the IME sell their products on the basis of the official dollar rate. Many producers had to follow the directive, while their production costs had significantly increased due to the higher prices of raw materials and consumables. As a result of this, our margins entered negative territory for the first time since the company was formed.”

Shahrestani said that the market for steel sheets was generally in decline this year, especially over the past two months: “Things are apparently getting better than they were. We have received new orders and we are delivering them. The market is currently neither bullish nor bearish. With 570 workers, the company is relying on itself without any support from the government. If we can pay our workers’ salaries and offset our production costs through our sales, that will be enough.”

The officials should fulfill their promises about production.

He complained about the officials’ measures (or lack thereof) in supporting production: “They do not fulfill their promises about boosting production; they have made no efforts to support producers. The Iranian National Tax Administration is pressing hard for taxes due to the government’s income problems this year; some producers have even been taken to court for tax debts. Parliament representatives have made promises about removing VAT, but they are doing the exact opposite. Now in the second half of 1398, the tax administration is still pressing us to pay overdue taxes from 1390 to 1393. With all of that, it’s really hard to understand the measures tax administrations have taken to realize the year’s slogans of supporting production.”

Shahrestani pointed that about 70% of companies and distributors in the domestic steel markets have gone out of business: “Market participants have lost hope of a potential rebound in the production sector. Regulations about direct tax and VAT have disappointed them and driven them away. Due to the bureaucracy in tax offices, people are reluctant to pay taxes. Tax offices are harder on companies that pay their taxes more regularly, because it’s easier to get taxes from them.”

In conclusion, the CEO said that the only way for the government to support production is to remove VAT for producers: “I assure you that if this is done, the market will have such a boost that will lift the whole economy.”

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