A PKR 25-per-unit gap in electricity-linked sales tax collection is tipping Pakistani steel mills toward imported scrap — and Wirana Shipping wants Islamabad to close it.

Under the Federal Board of Revenue's notification SRO 1245(I)/2026, relevant steelmakers using local scrap face sales tax collection of PKR 30 per unit of electricity consumed. Qualifying manufacturers using more than 70% imported scrap over the preceding 12 months pay just PKR 5 per unit, provided they meet prescribed reporting requirements. Both payments can be adjusted against output sales tax, but the difference in upfront collection hits mills' cash flow and shapes their choice of supplier.

For Pakistan's ship recyclers, the mechanism lands on top of an already subdued steel market. Weak demand has left mills reluctant to build stocks, and competition from imported material puts further pressure on local yards trying to sell recovered ferrous scrap, steel plate and non-ferrous metals.

Wirana, one of the industry's leading cash buyers, has spent weeks highlighting the disadvantage in its weekly market outlooks as local recyclers press their case with the authorities. The company's argument is straightforward: ship recycling supplies Pakistan's steel industry with material it needs, supports jobs in the yards, and sustains the businesses that have served the sector for decades. The tax mechanism, however, actively steels mills away from that domestic supply.

The commercial logic

The stakes for shippers and cash buyers are direct. If Gadani's yards struggle to sell material, they bid less aggressively for end-of-life tonnage, weakening Pakistan's position against competing beaches in India and Bangladesh. A tax structure that suppresses local scrap absorption therefore feeds back into demolition prices available to owners disposing of aged vessels.

The timing sharpens the concern. Future supplies of European scrap look increasingly uncertain. Tighter EU waste export rules take effect from 21 May 2027, with permitted destinations and waste streams subject to authorisation. The European Commission's proposed country list remains under consultation. If European scrap flows tighten, Pakistan's domestic recycling stream becomes strategically more valuable — precisely the stream the current tax arrangement penalises.

Cash flow, not headline rates

Because both the PKR 30 and PKR 5 collections are adjustable against output sales tax, the mechanism does not change final liabilities for compliant mills. What it changes is working capital. A mill buying local scrap ties up substantially more cash upfront each billing cycle, an cost import-reliant competitors avoid. In a soft steel market where margins are thin and stockbuilding is minimal, that cash-flow asymmetry is enough to redirect procurement.

Rakesh Khetan, CEO of Wirana Shipping, said: "Pakistan's ship recyclers supply material its steel industry needs and provide work for businesses well beyond the yards. Yet the current tax arrangements encourage mills to buy imported scrap. We want the government to recognise the value of material recovered within Pakistan and give it equal treatment. As access to overseas scrap becomes less certain, Pakistan has good reason to support the recycling industry it already has."

Hitesh Vyas, Vice President and Green Recycling Coordinator at Wirana Shipping, added: "The government has begun a PKR 12 billion (approximately USD 43 million) programme to upgrade infrastructure at Gadani. Yet its tax arrangements are putting the very industry that investment is intended to support at a disadvantage."

Contradictory signals from Islamabad

The Gadani point is the sharpest one in the debate. Islamabad is committing roughly USD 43 million to upgrade infrastructure at Pakistan's flagship recycling beach while its revenue authority runs a tax mechanism that discourages domestic mills from buying the yards' output. One arm of government is subsidising supply; another is suppressing demand.

Resolving that contradiction would be administratively simple: equalise the per-unit collection regardless of scrap origin, leaving the adjustment mechanism intact. Whether the Federal Board of Revenue moves before recyclers' margins erode further is the open question. With the EU's waste export regime tightening from May 2027 and Pakistan's imported scrap advantage set to narrow, pressure on Islamabad to level the field for domestic material will only grow.