KATHMANDU: Former Finance Minister Janardan Sharma announced on September 10, 2021, that the 5 percent customs duty on sponge iron imports would be reduced to zero through a replacement bill. He also introduced an excise duty of Rs 2.5 per kg on billet imports. This decision created a divide among iron rod producers and related material manufacturers.

However, the current government has reversed that decision through the budget for the next fiscal year (FY 2081/82). Finance Minister Barshman Pun announced that the customs duty on sponge iron would be increased from 1 percent to 2.5 percent. Additionally, the zero percent duty on the import of scrap, pig iron, and silico magnesium—key raw materials for melting units—has been raised to 1 percent. On the other hand, the excise duty on billet imports has been revoked.

Organising a press conference at the Ministry of Finance on Wednesday, Minister Pun claimed that the government has corrected past mistakes, asserting, "Tax rates have not been changed based on individual preferences."

Businessmen who produce iron rods by importing billets have welcomed the government's announcement, while those who have installed sponge iron and smelting plants oppose the new tax policy.

The Nepal Iron Rod Producers Association, representing businesses that produce iron rods and other iron products, held a press conference in Kathmandu on Wednesday claiming that the industry, worth Rs 36 billion, is in jeopardy due to the government’s policy. According to the association, industrialists who increased investment based on the replacement bill’s policy on sponge iron and melting units are now in trouble.

The association expressed concerns that the government's decision will have a long-term negative impact on industrialization.

Kiran Sakh, who produces iron rods by importing billets, argued that industrialists producing billets from sponge iron have exaggerated their costs. "Before the replacement bill, there were seven smelting factories; later, seven more were added," he said.

Despite the division among businessmen regarding government policy, they agree that the government is not providing policy stability.

Speaking at a press conference on Wednesday, Anjan Shrestha, Senior Vice President of the Federation of Nepalese Chamber of Commerce Industry, criticized the government's unstable policies, stating, "Why was it necessary to increase the customs duty that was reduced yesterday? The government's policies are constantly changing.”

The association publicly stated that it cannot operate melting plants without a consistent customs facility.

Sahil Aggarwal, president of the association, said that increasing customs duty on sponge, scrap, and pig iron while reducing it on billets discourages rather than encourages value-adding industries in Nepal.

"Most steel industries in Nepal have installed melting plants," he said. "This policy should be corrected." According to the association, out of the 23 industries currently operating in the country, 18-19 have installed melting plants that import and melt sponge, pig, and scrap iron into billets.

Bishnu Neupane, president of Saurabh Group, stated that the domestic billet manufacturing industries require separate infrastructure compared to the imported billet manufacturing industry, necessitating an additional investment of Rs 2 billion to Rs 4 billion. He argued that the government's announcement will negatively affect the billet manufacturing industry.

"If the government does not protect such industries, who will?" he asked. "Currently, all industrialists have rolling mills (producing iron rods by importing billets). Now, we are forced to import billets, pushing the country back 20 years."