The Federal Board of Revenue (FBR) has introduced a new sales tax collection mechanism for Pakistan’s steel industry, linking tax liability directly to electricity consumption in an effort to improve compliance and strengthen documentation across the sector. The new framework will apply to steel melters, re-rollers and composite units, including those generating their own electricity through captive power plants or other sources.

Issued under the Sales Tax Act, 1990, the new regime took effect from July 1, 2026, aligning with the start of the current fiscal year. Under the notification, steel melters and composite units using locally sourced re-meltable iron and steel scrap will pay Rs30 in sales tax per unit of electricity consumed during production.

Manufacturers relying on imported scrap for more than 70% of their raw material requirements, or sourcing over 70% of their scrap from suppliers registered under the Export Facilitation Scheme (EFS), will qualify for a significantly reduced rate of Rs5 per unit. Steel manufacturers operating captive power plants will pay Rs35 per unit, although eligible firms connected to the FBR’s real-time reporting system may also benefit from the lower rate.

The FBR said sales tax paid on electricity consumption will be adjustable against a manufacturer’s output sales tax liability, ensuring compliant businesses are not subject to double taxation. The authority also warned that companies failing to pay the tax on time could face legal action and electricity disconnection by the relevant distribution companies (DISCOs).

Officials say the new mechanism is part of broader efforts to curb tax evasion, improve transparency, and expand the tax base in Pakistan’s steel manufacturing industry.