Steel tax now tied to power use

The federal government has introduced a new sales tax collection mechanism for electricity-based steel manufacturers, linking tax liability directly to electricity consumption in an effort to improve compliance and strengthen documentation in the sector.

 

Under a notification issued by the Federal Board of Revenue (FBR), the new framework applies to steel melters, re-rollers and composite units, including those generating their own electricity through captive power plants or other sources. The regime took effect from July 1, 2026.

 

Steel melters and composite units using locally sourced re-meltable scrap will pay sales tax at PKR 30 per unit of electricity consumed. However, manufacturers sourcing more than 70% of their scrap from imports or suppliers licensed under the Export Facilitation Scheme (EFS) will qualify for a reduced rate of PKR 5 per unit, while self-generation units will be subject to a rate of PKR 35 per unit, subject to specified exemptions.

 

The FBR said sales tax paid on electricity consumption will be adjustable against output sales tax liability, ensuring compliant manufacturers do not face an additional tax burden.

 

Manufacturers consuming 500,000 or more electricity units per month on a single meter will be classified as steel melters or composite units, while those below the threshold will be treated as steel re-rollers under separate compliance requirements.

 

The notification also provides for legal action and electricity disconnection in cases of non-payment of sales tax. Distribution companies (DISCOs) have been directed to implement the mechanism uniformly, while the FBR will update the list of eligible steel manufacturers every three months to support enforcement and transparency.