New taxation mechanism links electricity usage with sales tax liability for steel melters, re-rollers, and composite units from July 1, 2026.
The Federal Board of Revenue (FBR) has introduced a new fixed sales tax mechanism for Pakistan’s steel industry, making electricity consumption the basis for calculating sales tax liabilities of steel melters, re-rollers, and composite manufacturing units. The new procedure will come into force from July 1, 2026, and is aimed at improving tax compliance while ensuring a more transparent taxation system across the sector.
Under the revised framework, the sales tax will be collected through electricity consumption, with different rates applicable depending on the source of raw materials and the mode of power generation used by manufacturers.
Different Tax Rates Based on Raw Material Usage
According to the notification, steel manufacturers using locally sourced remeltable iron and steel scrap will pay Rs30 per unit of electricity consumed in addition to the standard sales tax applicable under the Sales Tax Act.
Manufacturers that have used more than 70 percent imported scrap during the preceding 12 months will be charged a reduced rate of Rs5 per electricity unit consumed. The same concessional rate will also apply to manufacturers using scrap supplied by Export Facilitation Scheme (EFS) licensees, provided such scrap exceeds 70 percent of their total raw material consumption during the specified period.
Meanwhile, steel units operating on captive power plants or self-generated electricity, including those using bagasse or other energy sources, will be liable to pay Rs35 per electricity unit consumed.
Reduced Rate Linked to Digital Integration
The FBR has also offered an incentive for digitally compliant manufacturers. Steel melters and composite units integrated with the Board’s computerized real-time reporting system and meeting the prescribed imported scrap consumption threshold will qualify for the reduced Rs5 per unit sales tax rate.
Additionally, manufacturers will be allowed to adjust the sales tax collected through electricity consumption against their output sales tax, reducing the risk of double taxation.
New Categorization of Steel Units
The notification classifies manufacturers consuming 500,000 or more electricity units per month on a single meter as steel melters or composite units. Businesses consuming less than this threshold will be categorized as steel re-rollers.
Manufacturers must declare their production and supply according to their assigned category, while the FBR will review and update the list of eligible steel units every three months.
Strict Enforcement from July 2026
The FBR has directed all electricity distribution companies (DISCOs) to implement the prescribed sales tax rates on all eligible steel manufacturers from July 1, 2026, without exception. In cases where manufacturers fail to pay the sales tax by the due date mentioned on their electricity bills, the concerned DISCOs will be authorized to disconnect electricity supply in addition to any legal action initiated by the relevant tax authorities.
The new taxation model is expected to strengthen tax documentation, improve revenue collection, and enhance transparency in Pakistan’s steel manufacturing sector