Federal Board of Revenue (FBR) has given its verdict on tax exemptions and rationalisation. It has recommended the Ministry of Finance withdraw GST exemption on defence stores supplies, rationalise natural gas prices and taxes on sugar, reduce Special Excise Duty (SED) and the phased elimination of Federal Excise Duty (FED) in the cement industry.
Documents made available to Pakistan Today indicate that FBR has issued a number of recommendations to rationalise tariff and readjust budgeted allocations. It has recommended the Ministry of Finance withdraw GST exemption on the import and local supply of defence stores to make appropriate readjustment in the defence budget allocations.
FBR has underscored that gas distribution companies have to pay more input tax than output tax charged on supply of natural gas to consumers. It has proposed that refunds against subsidy be eliminated in the forthcoming Federal Budget 2011-12 through price rationalisation. The tax body has pointed out that GST on local supply of sugar is chargeable at eight percent against standard rate of 17 percent on import and there is no customs duty on the import of sweetener.
FBR has proposed that to rationalise taxation on sugar, eight percent GST should be converted into Federal Excise Duty (FED) on domestic supplies and replace GST at import stage into eight percent FED and eight percent Customs Duty, an aggregate of 16 percent. FBR has also recommended the phased elimination of FED on cement industry. It has proposed withdrawal of FED during three years in phased manner, which will start from financial year 2011-12. It suggests that during the first year, duty will be reduced by Rs 200 and will later be reduced by Rs 25 during the next two years.
It is also revealed that tax officials believe revenue loss in result of withdrawal of FED will be offset by an overall increase in cement trade in local markets through the plugging of loopholes. It has also proposed tax rationalisation on cigarettes and filter rods. FBR has pointed filter rods are currently liable to Excise Duty at Rs 1.0 per filter rod, while the average price of a filter rod does not exceed Rs 0.14. Such a high Excise Duty is prohibitively expensive and leads to lower production and compliance.
It proposes that FED on filter rods from Rs 1.0 per filter rod to 20 percent of the value. In addition, FBR has proposed that FED on green leaf tobacco (unmanufactured tobacco) should be increased to Rs 10 per kilogramme. It has advocated that zero-rating regime should be restored on capital goods, including plant and machinery related to agriculture, medical and diagnostic equipments. Federal Board of Revenue has also proposed reduction in Special Excise Duty of 1.5 percent to one percent from July 1, 2011.
