Sources told Business Recorder on Monday that the government decision to apply special rates of sales tax/federal excise duty on cigarettes, beverages, sugar and steel sectors has dented the sales tax regime with a huge revenue loss during current fiscal year. The Board was charging sales tax on cigarettes, beverages, sugar and steel sector, as recommended by the said industries. Instead of applying standard rate of 17 per cent sales tax or Federal Excise Duty, the FBR had distorted the tax system by applying concessionary or fixed regimes on the request of these sectors. The FBR's policy to levy tax on key sectors after consultation with these sectors caused a huge revenue loss to the national exchequer during 2013-14.
During the current fiscal year, cigarettes, beverages, sugar and steel sectors had been subjected to special sales tax/FED regimes to avoid actual payment of sales tax/FED. In next budget, the FBR will review the special tax regimes for the said sectors and bring them into standard taxation regime. Tax incentives have been given on export of sugar through drastically reducing Federal Excise Duty (FED) from 8 per cent to 0.5 per cent on local sale of sugar equivalent to quantity actually exported by the sugar mills as per assigned quota.
The FBR suffered a revenue loss of Rs 478 million due to the introduction of the capacity tax on the beverage industry replacing sales tax and FED from 2013-14. The Board had changed tax collection mechanism for beverage industry by replacing sales tax and Federal Excise Duty (FED) with the fixed 'capacity tax' on the basis of production capacity of the plants and machinery of units.
The FBR revised the FED slabs proposed by a leading multinational cigarette manufacturing company in budget (2013-14). In 2013-14 budget preparation exercise, the FBR had proposed a very simple FED structure for levying duty on cigarettes. Later, a new proposal was floated by the cigarette manufactures, which was incorporated in the Finance Act, 2013. The two cigarette companies had committed with the FBR to show at least 20 per cent increase in FED collection following introduction of new FED slabs for different brands of cigarettes. However this too has not materialised.
The steel sector is operating under special sales tax procedure. At present, the sales tax is charged on the steel sector on the basis of electricity consumed under "Special Procedure for payment of sales tax by steel melters and re-rollers". Instead of paying standard rate of sales tax, the FBR has allowed the steel sector to pay sales tax on the basis of electricity consumed. Under the Sales Tax Special Procedure, sales tax collection is lower than the standard sales tax rate of 17 per cent. Special sales tax treatment has also been available to the ship breaking industry under special procedures. The recovery proceedings are already under way for collection of the unpaid amount from the ship breaking industry, sources added.