The Federal Board of Revenue (FBR) has expanded the list of iron and steel manufacturers subject to sales tax through Sales Tax General Order (STGO) No. 22 of 2026, amending STGO 16 of 2026, by adding four registered manufacturers from the iron and steel sector.
This incremental expansion—announced in early September 2026—represents the FBR's ongoing refinement of its electricity-linked taxation regime for the steel industry, a policy now in its second phase of implementation.
Understanding the Mechanism
The scheme imposes a fixed sales tax of Rs. 5 per unit of electricity consumed through manufacturers' power bills. This shift away from traditional turnover-based taxation marks a deliberate move toward proxy-based assessment, particularly useful for high-volume, energy-intensive producers.
The tax applies to melters, re-rollers and composite units that meet prescribed criteria for scrap consumption, electricity use and imports of scrap under specified HS codes.
Critically, the listed manufacturers imported more than 70 percent of their total scrap purchases under the relevant HS codes directly during the previous 12 months, including purchases through the Export Facilitation Scheme and from importers. This threshold mechanism ensures that only documented, formalized players—those meeting stringent import and integration criteria—qualify for the concessional Rs. 5 rate.
Historical Context and Progression
The steel sector regime began in earnest on 1 July 2026 under SRO 1245(I)/2026.
An earlier revised list of 31 iron and steel manufacturers was notified under STGO No. 16 of 2026, dated August 6, 2026, replacing an earlier notification issued on August 4. The September expansion now extends coverage beyond that August benchmark.
Only 31 manufacturers, out of more than 200 steel producers operating in Pakistan, had met the prescribed documentation, scrap consumption and FBR integration requirements at that time.
Implications for Accountants and Compliance Officers
For practitioners advising steel and engineering manufacturers, several compliance consequences emerge:
First, firms must verify their eligibility status immediately. The manufacturers' eligibility was determined against criteria in SRO 1245(I)/2026 covering scrap consumption, electricity units used in steel production, and scrap imports under specified HS codes. Any client not on the published list but meeting these thresholds may petition for inclusion; conversely, those listed face immediate Rs. 5/unit liability if not already remitting.
Second, electricity bills now function as tax collection invoices. Electricity distribution companies will collect the additional Rs. 5 per unit sales tax through monthly electricity bills, with FBR believing this linkage will simplify the process and improve compliance. Accountants must reconcile these embedded withholdings against monthly sales tax returns and ensure proper credit or refund claims under section 59 of the Sales Tax Act, 1990.
Third, the documentation burden intensifies. Operations must be integrated with the FBR's computerised system. Firms lacking real-time integration face exclusion, even if scrap imports exceed 70 percent. This signals FBR's expectation that large manufacturers adopt electronic tracking and transparent supply chains—a structural compliance cost for smaller but eligible units.
Broader Policy Direction
The Pakistan Association of Large Steel Producers has said the new steel-sector tax framework would encourage documentation in the industry. The FBR is deliberately creating incentives for formalization: documented, compliant firms pay a fixed, predictable tax; undocumented competitors remain exposed to discretionary scrutiny. Over time, this mechanism may reshape the sector's competitive dynamics, favouring large, listed players and raising barriers for informal producers.
Next Steps for Practice
Accountants should: (1) audit client rosters for steel manufacturers; (2) cross-reference names against the FBR's published list; (3) advise clients on quarterly scrap import documentation to sustain the 70 percent threshold; (4) liaise with clients' power distribution companies to confirm accurate withholding at source; and (5) monitor FBR circulars for future expansions or amendments to the notified list.
The FBR's willingness to amend and expand the list in near-real time suggests that compliance pressure on non-listed firms will likely intensify, making proactive certification and integration a strategic priority for businesses in the steel supply chain.
This is an AI-assisted summary. Practising accountants should verify all figures, SRO references, and applicability against current FBR notifications at fbr.gov.pk and consult the actual STGO 22 of 2026 and SRO 1245(I)/2026.