ISLAMABAD: The documented steel sector has expressed serious concern over the Federal Board of Revenue’s new SRO 592(1)/2025 which would reverse the discontinuation of the Export Facilitation Scheme (EFS) for the iron and steel sector.
In a communication to Rashid Mahmood Langrial, Chairman, FBR on Wednesday, Pakistan Association of Large Steel Producers (PALSP) expressed deep concern regarding the issuance of Draft SRO 592(1)/2025, dated April 12, 2025, which proposes amendments to SRO 301(1)/2025 issued on March 7, 2025, thereby reversing the discontinuation of the Export Facilitation Scheme for the iron and steel sector.
It highlighted a long-standing and serious issue that has enabled widespread tax evasion: 90% of the imported motors and compressors consist of steel scrap, and the sales tax paid on this steel portion is wrongly claimed as input adjustment. This technique has been consistently used by bringing motor/compressor consignments in the name of steel furnaces, allowing the furnaces to illegally claim input tax and sharing the benefit with the importers. This has caused significant revenue leakage and must be immediately addressed.
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The industry suggested that the sales tax paid on the steel scrap portion (90%) of imported motors/compressors must not be available as input tax for the importer. This measure will help plug a major tax evasion loophole and support fair tax practices.
In addition, the association reiterated the following essential recommendations without which the EFS facility cannot function effectively or transparently in the steel industry:
(i); For imports of motors and compressors, only 10% of the import (copper) should be eligible for EFS, while the remaining 90% (steel) should be taxed at the port (CD, ACD, RD, and ST) and excluded from EFS eligibility. This formula is consistent with the Engineering Development Board (EDB) guidelines and has broad industry consensus. It will increase government revenue and reduce reliance on post-import audits.
(ii); In paragraph (B), sub-paragraph (ii), item 57 in Table 2 of sixth schedule of the Sales Tax Act (reference to be verified), the wording “excluding supplied by manufacturer-cum-exporter of recycled copper, authorized under Export Facilitation Scheme, 2021” must be deleted. This specific exclusion is the root cause of “flying invoices” and has resulted in massive tax losses while damaging the compliant steel sector.
(iii); A committee of experts should be constituted to conduct an independent evaluation of whether the EFS scheme has actually resulted in value addition and positive net dollar inflows for the country before the scheme is extended to steel companies.
Reinstating EFS in its previous form would have serious consequences for government revenue and the formal steel sector, which is already under tremendous pressure due to the current economic crisis. The previous EFS framework was widely misused to import duty-free steel scrap and generate flying invoices, undercutting tax-compliant businesses and promoting malpractice.
It led to negative value addition and fostered a non-transparent environment. This is an SOS call from Pakistan’s steel industry. Reverting to the previous structure of EFS without closing tax evasion loopholes will be catastrophic for both FBR and the domestic steel sector, it added.
Copyright Business Recorder, 2025
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