ISLAMABAD: The Federal Board of Revenue has introduced a new sales tax mechanism for Pakistan’s steel sector, linking tax payments to electricity consumption and the type of scrap used by manufacturers.
Under the revised system, steel melters using locally sourced scrap will pay sales tax at a rate of Rs30 per unit of electricity consumed. Units using more than 70% imported scrap will be charged Rs5 per electricity unit.
The same reduced rate of Rs5 per unit will apply to manufacturers sourcing more than 70% of their scrap from suppliers licensed under the Export Facilitation Scheme.
Steel units operating captive power plants or generating their own electricity will be required to pay sales tax at Rs35 per unit.
Eligible manufacturers connected to the FBR’s real-time monitoring system will also pay sales tax at Rs5 per unit.
Tax Payments Can Be Adjusted Against Output Tax
According to the new framework, sales tax paid on the basis of electricity consumption may be adjusted against the manufacturer’s output tax liability.
Manufacturers consuming 500,000 or more electricity units per month will be classified as steel melters or composite units for taxation purposes.
The FBR has also warned that electricity connections may be disconnected if a manufacturer fails to deposit the required sales tax within the prescribed deadline.
Discos Directed to Apply New Rates From July 1
The tax authority has instructed all electricity distribution companies to collect sales tax under the revised rates with effect from July 1, 2026.
Lists of steel melters and composite units will be updated every three months, while the names of eligible steel manufacturers will be issued through a Sales Tax General Order.
The new mechanism is intended to standardise sales tax collection across the steel industry and improve monitoring of manufacturers operating under different production and energy arrangements.
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