Steel Sector Voices Concerns Over Proposed Changes to Export Facilitation Scheme

The organized steel industry has conveyed significant apprehension regarding the Federal Board of Revenue’s (FBR) latest SRO 592(1)/2025, which could potentially undo the discontinuation of the Export Facilitation Scheme (EFS) for the iron and steel industry.

In a formal communication addressed to Rashid Mahmood Langrial, Chairman of the FBR, the Pakistan Association of Large Steel Producers (PALSP) expressed profound unease concerning the issuance of Draft SRO 592(1)/2025, dated April 12, 2025. This draft proposes revisions to SRO 301(1)/2025, initially issued on March 7, 2025, which would effectively reverse the cessation of the Export Facilitation Scheme for the iron and steel sector.

PALSP emphasized a persistent and critical problem that has facilitated extensive tax avoidance: a substantial portion of imported motors and compressors includes steel scrap, and the sales tax remitted on this steel component is inaccurately claimed as input adjustment. This method has been consistently exploited by importing motor/compressor shipments under the guise of steel furnaces, enabling these furnaces to unlawfully claim input tax while dividing the benefits with the importers. This practice has resulted in considerable revenue loss and requires prompt attention.

Iron & steel sector: FBR directed to suspend revised EFS rollout

The industry has suggested that the sales tax applied to the steel scrap portion of imported motors/compressors should not be considered as input tax for the importer. Implementing this measure could effectively address a major tax evasion loophole and promote equitable tax practices.

Furthermore, the association restated crucial recommendations that are vital for the EFS facility to operate effectively and transparently within the steel industry:

  • For imports of motors and compressors, only a limited portion should qualify for EFS, while the remaining portion should be subject to taxation at the port. This approach aligns with the Engineering Development Board (EDB) guidelines and enjoys broad industry support. It is projected to increase government revenue and decrease reliance on audits after importation.
  • Within the Sales Tax Act, specific wording should be removed to address the root cause of “flying invoices” and to mitigate substantial tax losses. This change aims to protect the compliant steel sector.
  • An independent committee of specialists should be assembled to perform an impartial assessment of whether the EFS scheme has genuinely led to value addition and favorable net dollar inflows for the nation, before the scheme is broadened to include steel companies.

Reinstating the EFS in its prior state could present severe repercussions for governmental income and the formal steel sector, which is already confronting significant challenges due to the ongoing economic downturn. The former EFS structure was often exploited to import steel scrap without duties and to create fraudulent invoices, thereby undermining tax-abiding enterprises and encouraging unethical conduct.

This situation has fostered a lack of transparency and has led to negative value addition. The steel industry is issuing an urgent appeal. Reverting to the previous EFS framework without rectifying tax evasion vulnerabilities could prove detrimental to both the FBR and the domestic steel sector.