Pakistan: FBR Proposes Increase in FED Rate

Source from:  Business Recorder  05/23/2014

The Federal Board of Revenue (FBR) has proposed to raise the incidence of the Federal Excise Duty (FED) on all brands of cigarettes from existing 55 percent to 65-70 percent in coming budget (2014-15). According to the budget proposal of the FBR communicated to the Finance Ministry here on Monday, it has been proposed to use 2-3 tiers slab structure. There would be composite rates of duty and keep total incidence of FED and sales tax at 70 percent.

In this regard, the FBR has prepared three different budget proposals for 2014-15. The first proposal is that straight 65 percent FED would be imposed on all kinds of cigarettes. Under the second proposal, two tier slabs of excise duty on cigarettes have been proposed. The two tier slab would be 65 percent higher slab of the FED and the third proposal is the interdiction of the three tier duty structure with composite rates of the FED on cigarettes.

Sources told here on Monday that the FBR has taken the decision in the light of failed experience of two tier slabs on the FED on cigarettes. The existing duty structure would be replaced with the entire new duty regime for improving FED collection by at least Rs 15 billion in 2014-15. The FBR has projected Rs 15 billion as expected revenue increase from two manufacturers in 2014-15.

At present, if the retail price of cigarettes is less than Rs 2,286 per 1,000 sticks, the rate of excise duty would be Rs 880 per 1,000 sticks. If the retail price of cigarettes is greater than Rs 2,286 per 1000 sticks, the rate duty would be Rs 2,325 per 1,000 sticks.

In last budget, the cigarette manufacturers managed to get the FED structure changed on the commitment of increasing revenue by Rs 15 billion. Through manipulation of the excise rates, the industry reduced the tax incidence and substantially raised their profit margins. As a result of fixed/specific rates, the government does not benefit when cigarette prices are enhanced.

As per FBR budget proposal, the government would give clearance to one of the three proposals floated to the Finance Ministry. The first option is the straight 65 percent FED on all cigarettes. Under the second option, two tier slabs has been proposed. The two tiers- lower with specific rate, upper 65 percent FED and the third option is the three tiers duty structure with composite rates. Enditem