Steel sector seeks sales tax reforms, curb on fake invoices

ISLAMABAD: The documented steel sector has strongly proposed the Tax Policy Unit (TPU) of the Finance Ministry to provide a level playing field to the formal sector in budget by removing distortions in sales tax law and controlling fake and flying invoices. According to a letter of Pakistan Association of Large Steel Producers (PALSP) to the Federal Board of Revenue (FBR) and the TPU, the exceptions created for the importers etc through Finance Act 2025 in the sales tax laws has resulted in serious tax anomaly.

The formal steel sector continues to face a serious and systemic challenge due to the misuse of input tax through non-genuine (flying) invoices.

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The exemption on local supplies of iron and steel scrap was originally proposed by the association, with the objective of curbing fake invoicing and promoting documentation of the sector, an objective that was duly acknowledged by the FBR.

However, the subsequent insertion of specific exceptions through the Finance Act 2025 without consultation with the industry has materially altered the intended policy outcome.

In particular, the exceptions permitting certain categories of suppliers to issue taxable invoices have undermined the effectiveness of the exemption. These provisions have inadvertently facilitated the generation of inadmissible input tax through fake and flying invoices.

As a result, undocumented operators continue to benefit, while compliant steel manufacturers face a clear competitive and tax disadvantage.

The relevant exceptions to S. No. 57 of Table-2 of the Sixth Schedule to the Sales Tax Act, 1990 are:

(i); Supplies made by manufacturer-cum-exporters of recycled copper, authorized under the Export Facilitation Scheme, 2021, to registered steel melters, subject to prescribed conditions; and

(ii); Supplies made directly by importers (verifiable through Goods Declarations) to registered steel melters, subject to prescribed conditions.

In view of the foregoing, and to safeguard government revenue while ensuring a level playing field for the formal sector, we propose the removal of these exceptions from S. No. 57 of Table-2 of the Sixth Schedule to the Sales Tax Act, 1990. The industry has requested government intervention for the early consideration of this proposal in the interest of the National Exchequer’s revenue, fair competition, and sustainable industrial growth, the industry added.

Copyright Business Recorder, 2026