Islamabad, April 17, 2025 – The Pakistan Association of Large Steel Producers (PALSP) has voiced serious reservations regarding the Federal Board of Revenue’s (FBR) proposed changes to the tax framework governing the Export Facilitation Scheme (EFS) for the steel industry.
In an official communication addressed to FBR Chairman Rashid Mahmood Langrial, PALSP highlighted the adverse implications of Draft SRO 592(1)/2025, dated April 12, 2025, which seeks to amend SRO 301(1)/2025 issued on March 7, 2025. The association warned that reversing the EFS discontinuation for the iron and steel sector would reintroduce a flawed mechanism that previously facilitated large-scale tax evasion and eroded state revenues.
PALSP drew attention to a long-standing malpractice where 90% of imported motors and compressors — made predominantly of steel scrap — were misused for input tax adjustments. The steel portion, though taxable, was wrongfully used to claim input refunds under EFS by steel furnaces, in collaboration with importers. This loophole, the association stated, has cost the exchequer billions and must be closed permanently.
To combat these issues, PALSP proposed several key reforms. It urged that only 10% of the value of such imports (copper content) be eligible under EFS, while the remaining 90% (steel content) should be taxed at the port level. This method, in line with Engineering Development Board (EDB) guidelines, would not only curb abuse but also increase upfront tax collections and reduce reliance on post-import audits.
Furthermore, PALSP demanded the deletion of a specific clause — “excluding supplied by manufacturer-cum-exporter of recycled copper, authorized under Export Facilitation Scheme, 2021” — from the sixth schedule of the Sales Tax Act. According to the association, this wording has been the legal foundation for “flying invoices,” a practice that enables fake documentation and has devastated the compliance-driven segment of the steel market.
To assess the real impact of EFS, PALSP also called for the formation of an independent expert committee. This committee should evaluate whether the scheme has actually led to value addition or improved net dollar inflows. Until such analysis is done, the association strongly opposes reinstating the previous EFS framework.
“Restoring EFS without closing these loopholes would be disastrous for the already struggling formal steel sector,” PALSP warned, labeling the move as a threat to both government revenue and ethical business practices.