New sales tax procedures enable seamless transition from sole proprietorships and AOPs to companies without disrupting tax compliance
ISLAMABAD: The Federal Board of Revenue (FBR) has introduced a special tax procedure to facilitate the voluntary corporatisation of iron and steel manufacturers by allowing continuity of sales tax records, tax credits and liabilities following incorporation as limited companies.
The FBR issued Sales Tax General Order (STGO) No. 10/2026 – IR Policy, prescribing special procedures to address tax-related issues faced by sole proprietorships and Associations of Persons (AOPs) converting into companies limited by shares.
According to the tax authority, the initiative forms part of its broader drive to promote documentation and digitalisation of Pakistan’s economy, particularly within the iron and steel sector.
Seamless transition to corporate structure
The FBR noted that a growing number of iron and steel manufacturers operating as sole proprietorships and AOPs have expressed their intention to convert their businesses into corporate entities.
However, the transition has created operational challenges relating to the continuity of sales tax declarations, adjustment of input and output tax, tax refunds and the settlement of outstanding tax liabilities.
Invoking powers under Section 55 of the Sales Tax Act, 1990, and Section 43 of the Federal Excise Act, 2005, the FBR has introduced Standard Operating Procedures (SOPs) with immediate effect to ensure a smooth transition.
Under the new framework, the National Tax Number (NTN) assigned to the newly incorporated company will be linked with the previous NTN and Sales Tax Registration Number (STRN), allowing uninterrupted filing of sales tax returns, adjustment of input tax and computation of sales tax liabilities.
Eligibility criteria
The facility will be available only to eligible iron and steel manufacturers that voluntarily opt for corporatisation and submit an application to the FBR seeking benefits under the Sales Tax General Order.
To qualify, the new company must be incorporated on or before July 31, 2026.
The STGO further stipulates that:
• An individual business must be converted into a wholly owned company in accordance with Section 95 of the Income Tax Ordinance, 2001.
• An Association of Persons (AOP) must be converted into a wholly owned private limited company under Section 96 of the Income Tax Ordinance, 2001.
Joint responsibility for tax obligations
The FBR has made both the predecessor and successor entities jointly and severally liable for complying with tax laws.
Their responsibilities include:
• Maintaining books of accounts and tax records;
• Producing records before Inland Revenue authorities when required;
• Paying adjudged sales tax and federal excise liabilities, including any short-paid taxes;
• Responding to adjudication and audit proceedings relating to periods before or after corporatisation.
The Board will decide applications within seven days of receipt. Once approved, the newly incorporated company will be included in Table-1 of the Sales Tax General Order.
Transition period until December 2026
The facility to link the old and new NTN/STRN will remain available until December 31, 2026.
During the transition period, eligible taxpayers will be permitted to carry forward and utilise accumulated input tax, excess input tax and stock-related tax balances without interruption.
From January 1, 2027, the newly issued NTN and STRN will become the sole operative tax registration of the incorporated company. The FBR has clarified that no tax transactions or sales tax activities will be permitted under the old registration after December 31, 2026.
The latest measure is expected to encourage voluntary corporatisation in Pakistan’s iron and steel industry while ensuring uninterrupted tax compliance, preserving accumulated tax credits and supporting the FBR’s efforts to improve documentation of the economy.