Cigarettes, garments, leather: Tax increase comes into force before start of year

FBR begins collecting higher taxes to bridge revenue gap in outgoing year.

ISLAMABAD:

In what appears to be a mini-budget, the federal government has increased taxes on cigarettes, imported garments, leather products and steel industry with immediate effect aimed at covering the shortfall in the revised tax target of Rs2.275 trillion for the outgoing fiscal year.

According to three separate notifications issued by the Federal Board of Revenue (FBR), the tax revisions announced for the four areas in the budget for next fiscal year 2014-15 beginning July, will now come into force from June 4.

With these steps, the FBR may not be able to collect more than Rs5 billion in the remaining 27 days of the current year, but it shows how the government is struggling to achieve the tax target, which has already been revised twice, say experts.



For the current year ending June 30, parliament had approved Rs2.475 trillion tax collection target.

According to sources, without any new steps, the FBR may not be able to collect more than Rs2.250 trillion, leaving a shortfall of Rs25 billion. The government has planned to bridge the shortfall through a combination of new tax measures and getting advances from state-owned institutions and commercial banks, they say.

In the first 11 months, the FBR has pooled Rs1.955 trillion, an increase of 16% over the previous fiscal year. It needs to collect Rs320 billion in June, requiring 20% growth over last June’s collection of Rs267.6 billion.

According to the Statutory Regulatory Order 422, duty on cigarettes has been immediately increased in the range of 13.2% to 23.3%.

Federal excise duty on locally produced cigarettes having retail price above Rs2,706 per one thousand sticks has been increased from Rs2,325 to Rs2,632, a rise of 13.2%.

Duty on locally produced cigarettes with retail price below Rs2,706 per thousand sticks, has gone up 23.3% to Rs1,085.

The implementation of tax increase before the budget is passed by parliament may be treated as a violation of the Supreme Court’s judgment that bars the government from abusing powers of parliament.

In its order of March 2014, the court had held that no tax could be imposed without the approval of parliament. It also struck down the Provisional Collection of Taxes Act 1931, terming it unconstitutional.

However, the FBR insists that SRO 422 does not impose any new taxes. The board had been given powers by the federal government for issuing and withdrawing notifications under relevant provisions of the Sales Tax Act 1990 and Federal Excise Act 2005. The notifications in question could have been issued any time in the financial year, it said.

According to the budget book, as against collection of Rs62.3 billion in excise duty on cigarettes in the outgoing fiscal year, the revenue is estimated to be Rs90.4 billion next year. This shows that the FBR can easily fetch an additional Rs2.5 billion in just one month.

The FBR also issued SRO 420 to impose 17% sales tax on imported leather goods and garments. According to a conservative estimate, it is expected to generate Rs2 billion next year, which many believe is an understated figure.

Through SRO 421, the FBR increased sales tax on steel melters and re-rollers to Rs7 per electricity unit, up from Rs4. It also increased sales tax on supply of ship plates to Rs6,700 per ton from Rs5,862. An amount of Rs1 billion is expected to be recovered from this source in June.

“There is no irregularity or transgression of powers by the federal government in issuing these notifications,” the FBR remarked.

Published in The Express Tribune, June 7^th, 2014.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.