Sources told Business Recorder here on Thursday that the FBR is also reviewing excise duty structure on cigarettes. The existing FED rates on cigarettes might not be raised or kept lowered in budget keeping in view massive decrease in FED collection from documented sector in 2016-17 as a result of growing illicit trade.
According to sources, the FBR has proposed Rs 7 per litre as FED on beverages which has been out rightly rejected by the entire beverage industry. The beverage industry has shown higher growth of 35 percent in excise duty collection from beverage sector during 2016-17. The entire industry has rejected the proposal of the FBR to impose FED on the basis of per litre which has no rationale in light of 35 per cent growth in FED collection during 2016-17.
Experts are of the view when the sector is showing such a phenomenal growth in revenue collection, a new kind of taxation regime on beverage sector would serve no purpose. If the sector was showing any declining trend in FED collection, the FBR would have experimented with new kind of taxation. Such kind of taxation on the basis of per litre has no justification in the presence of FBR's old experiment of fixed taxation which failed in the past.
Under capacity tax regime, manufacturers of beverages and aerated water were allowed to pay capacity tax in lieu of the sales tax and Federal Excise Duty (FED) on the basis of production capacity of plants and machinery of units. Under this arrangement, the FBR had levied and collected federal excise duty and sales tax on the basis of production capacity of plants, machinery, undertakings, establishments or installations manufacturing aerated waters, in lieu of the federal excise duty and sales tax leviable. Later, the FBR was forced to withdraw capacity tax on beverage industry as the industry failed to show 25 per cent increase in revenue (sales tax/federal excise duty). After this failed experiment of capacity tax, the FBR has now proposed another unique kind of taxation on beverages, sources maintained.
Since past few years, the beverage sector has presented the proposal for reduction in Federal Excise Duty (FED), and simultaneously asked the government to impose a level playing field. It is to be noted that some beverage industry players are not paying tax in proportion to their market share. The FBR is well aware of the discrepancy in tax collection against the fair share of all industry players. However, they have not been able to implement policies and procedures to stop tax evasion.
Any further increase in FED will have adverse impact on the beverage industry. Not only will the investment flow slow down, other allied industries will also face the pressure of slowing business. Furthermore, the industry won't be able to create new jobs and grow in a sustainable routine, they said. The beverages sector has been traditionally regulated under the regime of Federal Excise Duty (FED) and Sales Tax (ST) at 9 percent and 16 percent respectively. The sector has always been the subject of discriminatory taxation as compared to other sectors within food & beverages industry.
Through years of lobbying with the government by the sector for a level playing field, the FED was brought down to 6 percent in 2012 with a commitment to eliminate it completely. However, subsequent governments could not uphold the same, and increased FED to 10 percent.
In 2015-16 budget, the government levied 3 percent additional FED on beverages. However after several rounds of discussion between the industry representatives and the government, the increase was limited to 1.5 percent instead of 35. Thus the effective FED rate became 10.5 percent. In 2016-17, the government proposed another 3.5 percent increase which was later reduced to 1 percent after rigorous lobbying by the stakeholders.
Copyright Business Recorder, 2017