FBR Withdraws EFS 2021 for Iron & Steel Scrap to Tighten Tax Rules

The Federal Board of Revenue (FBR) has rescinded the Export Facilitation Scheme (EFS) 2021 for importers of iron and steel scrap, aiming to curb misuse and enforce stricter tax regulations. This change, announced through SRO 204(I)/2025, includes updates to the Customs Rules of 2001.

According to the updated rules, goods purchased under the EFS must be utilized within nine months, with any extensions granted only under special circumstances by a committee designated by the FBR.

The revised rules also impose tighter compliance conditions, such as reducing the input utilization timeframe, requiring authorisation based on production capacity, and replacing insurance guarantees with bank guarantees. Additional controls will be enforced on vendor facilitation and the withdrawal of samples to ensure that imported inputs are indeed used for the production of exported goods.

To block non-compliant entities from benefiting, the FBR has stated that businesses with unresolved recovery cases, legal violations, or ongoing criminal proceedings will have their authorizations suspended, with the possibility of full cancellation after review.

Moreover, the new regulations stipulate that authorisation for input goods will now be issued on an annual basis, contingent on adherence to regulatory standards. Any violations, including illegal removal of goods, failure to meet value addition requirements, or holding goods longer than allowed, will lead to the forfeiture of bank guarantees.

These changes are part of a broader initiative to enhance tax compliance and better control the scrap import market, ensuring fair competition in the steel industry and preventing tax evasion.

Experts in taxation pointed out that the exclusion of iron and steel scrap from the EFS will require importers of compressors and motors to pay all relevant taxes upfront at the point of importation, including customs duties, sales tax, and income tax. Moreover, these importers will no longer be able to issue sales tax invoices when selling scrap locally, effectively eliminating the opportunity for fraudulent invoicing and tax evasion. This move has been supported by the steel industry, which believes it will create a more level playing field by ensuring uniform tax obligations across all businesses.