Post-election policy shift: FBR seeks to revive excise duty regime

Wants to halt the process of phasing out excise duties, impose it on two dozen goods and services.

ISLAMABAD:

In a major policy shift, tax authorities are contemplating holding back the process of abolishing federal excise duty on goods and services, started two years ago, and instead want to impose the duty on two dozen items in next year’s budget.

The items include cosmetic products, racing cars, filter rods of cigarettes, lubricant oils, air conditioners, deep freezers and various types of other oils.

Sources in the Federal Board of Revenue revealed that tax officials have proposed that the policy to phase out Federal Excise Act of 2005 over three years may be abandoned from the next fiscal year, 2013-14, following the previous government’s move to abolish duty on 25 revenue-generating items which hit tax collection hard.

If the duty stays, it will generate billions of rupees next year, but the final decision will be taken by the Pakistan Muslim League-Nawaz government that is poised to take the reins of the country after winning general elections.



PML-N stalwart Sartaj Aziz did not comment on his party’s policy on federal excise duty. He only said the PML-N wants to increase revenues, but the policy to achieve this goal will be formulated by the new finance minister and the cabinet.

In 2011, the PPP-led coalition government started phasing out excise duty and scrapped the duty on 15 items in the first phase. In his last budget speech, former finance minister Dr Abdul Hafeez Shaikh vowed that the Excise Act will be completely phased out in two years while announcing withdrawal of duty on more items.

The previous government was eliminating the duty in a bid to gradually reduce the number of taxes to two major ones – income tax and sales tax – aimed at simplifying the system besides reducing the cost of doing business.

Sources said excise duty on most of the goods had been removed as an incentive to the private sector to bring down product prices. But the duty on some of goods like motor oil and waste oil was scrapped allegedly in the face of pressure from some vested interests and in return for kickbacks.

The exchequer suffered a revenue loss of Rs8 billion on just these two items, they said.

Excise duty is universally imposed to curb consumption of luxury items, but this principle is violated by successive governments as the duty is levied on many essential items as well, said Ashfaq Tola, a renowned chartered accountant from Karachi and a tax expert.

Proposals

Tax authorities seek to impose again 10% of the difference between the price before tax and production cost as excise duty on air conditioners and deep freezers. Both of these are considered luxury items and are also subject to sales tax.

The FBR is also aspiring to levy 5% duty ad valorem on station wagons and racing cars with cylinder capacity exceeding 8,500cc.

Furthermore, it is planning to impose 10% duty ad valorem on viscose staple fibre, Rs13 per litre duty on organic composite solvents and thinners, Rs25 per kg duty on grease, 88 paisa on methyl tertiary butyl ether, 7.5% duty on carbon black oil, 10% of retail price or Rs7.5 per litre duty on waste oil, 15% duty ad valorem on other mineral oils excluding sewing machine oil, Rs185 per ton on other fuel oils, Rs13 per litre on solvent oil and Rs10 per litre on transformer oils.

Last year, FED was removed from lube oil, lubricating oils, filter rods and skincare products. FBR’s proposal includes levying 10% per litre duty on lubricant oils, 10% on skincare products and 20% of the difference between cost of production and price before tax on filter rods of cigarettes. The proposal also includes increasing federal excise duty rate for cement.

Sources said the government is also considering reintroducing federal excise duty on livestock insurance and asset management companies.

Published in The Express Tribune, May 18^th, 2013.

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