Steel millers yesterday warned of slowdown in infrastructure development and housing construction in both rural and urban areas if 15 percent VAT is slapped on rod under the new law.

At present, only Tk 900 is levied on each tonne of rod as VAT. The amount of VAT, also known as consumption tax, will rise to Tk 7,500 at a market price of Tk 50,000 per tonne once the new law comes into effect from July 1, the steel millers said.

“The steel industry will suffer,” said Manwar Hossain, chairman of the Bangladesh Auto Re-Rolling & Steel Mills Association (BARSMA), at a press conference held at the National Press Club.

BARSMA, Bangladesh Steel Mill Owners Association, and Bangladesh Re-rolling Mills Association jointly organised the press meet to share their concerns for the application of 15 percent VAT on rod, a key construction ingredient.

Infrastructure development and housing construction will be affected for the imposition of the 15 percent VAT. Subsequently, he called for bringing down the rate to 3-5 percent.

Industry operators said the sector could keep up with the country's fast growing construction demand because of the reduced VAT rate on rod.

The country's annual demand for rod is estimated to be more than 25 lakh tonnes, according to EBL Securities' 2016 research report on the steel sector.

In recent years, steel makers started expanding their capacity to make billet, the main raw material for rod, in order to cut the cost of production by reducing import dependence.

The country's billet production capacity more than doubled to nearly 35-40 lakh tonnes per year, accounting for more than two-thirds of the annual demand, according to industry operators.

Hossain said the imposition of the 15 percent VAT on rod will push up the price sharply and discourage a large number of people to build homes.

As a result, the other related industries will suffer for the fall in demand for construction.

“We know how much our buyers can afford,” he said in response to a question on why the steel millers are worried even though the indirect tax is paid by consumers.

The price spiral will also push up the cost of the government's major infrastructure projects, including Padma bridge and metro rail projects.

“Infrastructure will be badly hit,” said SM Khorshed Alam, vice-president of the Bangladesh Association of Construction Industry.

Realtors present at the meet said the cost of apartments would rise, affecting the real estate sector, which has been registering sluggish demand, in the process.

The steel millers also demanded zero VAT on the import of scrap and sponge iron.