The increase in tax rates and withdrawal of sales tax/federal excise exemptions and zero-ratings would generate revenue of around Rs 70-80 billion to meet the projected revenue collection target of Rs 1,952 billion for 2011-12.
Sources told Business Recorder here on Friday that the increase in the rate of the federal excise duty (FED) on the import of edible oils, vegetable ghee and cooking oil from Rs 1 per metric ton (PMT) to Rs 2 PMT would generate around Rs 1.5 billion in 2011-2012, restoration of standard rate of 17 percent on sugar would generate Rs 7 billion, withdrawal of sales tax exemption on defence stores Rs 10 billion, abolition of tax incentive package of Khyber Pakhtoonkhwa Rs 10 billion and increase in sales tax rate from 17 to 25 percent on supply of electricity and natural gas to the un-registered retailers, manufacturers and restaurants would generate revenue to the tune of Rs 5 billion.
The withdrawal of sales tax exemption on poultry and cattle feed is estimated to collect Rs 3 billion and rationalisation of excise duty on cigarettes would generate Rs 9 billion. In case the reduced rate of 4-6 billion on local supplies of five zero-rated sectors is replaced with 17 percent sales tax, the FBR would collect around Rs 27-28 billion in 2011-12.
According to sources, the FBR will retain standard rate of 17 percent sales tax in 2011-2012 as a decrease of one percent sales tax would cause revenue loss to the tune of Rs 30 billion. The administrative and enforcement measures would generate around Rs 35 billion in next fiscal.
The reduction in sales tax on cement would cause revenue loss to the tune of Rs 3.7 billion in 2011-12. It is proposed to withdraw federal excise duty on cement in phases, ie during three years commencing from 2011-12. During the first year, duty will be reduced by Rs 200, where after it will be reduced by Rs 250 during the next two years. Revenue loss shall be compensated by increase in legitimate trading of cement in local market.
The FBR has proposed to the Ministry of Finance to enhance federal excise duty (FED) on the import of edible oils, vegetable ghee and cooking oil from Rs 1 per metric ton (PMT) to Rs 2 PMT to generate approximately Rs 1.5 billion in 2011-2012. The enhancement of the FED on the vegetable ghee and cooking oil is one of the revenue generation measures for fiscal 2011-12. According to the budget proposals of the FBR received in the ministry of finance, under SRO24(I)/2006 fixed amount of FED @ Rs 1 per kg was levied at import stage on edible oils, vegetable ghee and cooking oil in lieu of value addition at manufacturing stage.
As the prices of vegetable ghee and cooking oil have almost doubled from $550 per metric ton (PMT) to $1150 PMT, it is proposed that the rate of fixed amount of duty on vegetable ghee and cooking oil may be enhanced to Rs 2 per kg. Sources said that the government is also expected to withdraw sales tax exemption on medical equipment used by the commercial hospitals in the coming budget (2011-2012).
The hospitals operating on charitable basis and those run by government are enjoying complete exemption on the import and supply of all categories of goods. The ambulances and medicines are also exempt. The general exemption on surgical tapes, ultrasound gel and diapers for adults (patients) is also available. Such diapers fall under Pakistan Customs Tariff (PCT) head 4818.4010.
However, diapers of PCT head 5601.1040 are zero-rated under SRO 283(I)/2011 and their inputs are zero-rated under SRO 1161(I)/2007. These exemptions were granted primarily to combat smuggling except SRO 283(I)/2011, which is meant to promote exports. Although private sector investments are making up for state's deficiency in promoting healthcare facilities but the principal purpose of such investments is not a "social service" but profit making. Therefore, the government is likely to withdraw exemption on surgical tapes, ultrasound gel and diapers of all categories including those covered in SRO 283(I)/2011 and SRO 1161(1)/2007.
Sources said that the government is likely to impose 17 percent sales tax on the import and local supply of commercial and recreational aircraft and ships its spare parts/equipment including equipment and machinery for pilotage, salvage or towage for use in ports or airports in coming budget (2011-2012).
Sources stated that the FBR will introduce comprehensive amendments in the Sixth Schedule of the Sales Tax Act 1990 to withdraw exemptions from 2011-2012. The FBR has proposed withdrawal of sales tax exemptions on the import and supply of airplanes and other aircraft, of an un-laden weight not exceeding 2,000 kg; airplanes and other aircraft, of an un-laden weight exceeding 2,000 kg but not exceeding 15,000 kg and airplanes and other aircraft, of an un-laden weight exceeding 15,000 kg.
According to the FBR proposal forwarded to the ministry of finance, 17 percent sales tax would also be imposed on the supply of equipment and machinery for pilotage, salvage, air navigation and handling of ships and aircraft. The sales tax exemption would be withdrawn on the import of cruise ships, excursion boats and similar vessels principally designed for the transport of persons; ferryboats of all kinds, tankers and other vessels for the transport of goods and other vessels for the transport of both persons and goods.
Presently, the supply, repair and maintenance (including spare parts and equipment) of ships exceeding gross tonnage capacity of 15 LDT/non-recreational ships, aircraft excluding those weighing above 8000-kg and non-recreational aircraft are zero-rated. At the same time, exemption of sales tax is available on the import and supply of aircraft and the aforesaid ships. The supply of equipment and machinery for pilotage, salvage, air navigation and handling of ships and aircraft is zero-rated.
Meanwhile, such equipment and machinery is also exempt. Thus multiple concessions are available in this regard despite the fact that these dispensations are used for commercial purposes and airports/seaports have their own sources for income mobilisation. The FBR has proposed to the ministry of finance to withdraw all these concessions and exemptions in the coming budget (2011-12).
Sources stated that the 17 percent sales tax has been proposed on special purpose goods used by local governments. As per budget proposals of the FBR, with the redistribution of jurisdictions between the federal government and provincial governments, the capacity of the provincial governments to mobilise local resources is understood to have increased.
Thus, there is a need to review sales tax exemptions on special purpose goods used by local governments. These include incinerators for disposal of waste, motorised sweepers and snow ploughs, fire-fighting vehicles, waste, disposal trucks, lorries, special purposes vehicles for the maintenance of streetlights and overhead cables. Ministry of Finance has been proposed to withdraw sales tax exemption on all these special purpose goods, FBR proposal added.
The FBR has proposed imposition of the federal excise duty (FED) on the iron and steel products manufactured in the non-tariff areas of Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata) to be brought into the tariff areas of Pakistan from next fiscal (2011-2012). The FBR has worked out revenue to the tune of Rs 500 million from imposition of the FED on still items of tribal areas into the tariff areas during 2011-2012.
Sources said that bricks and building blocks of cement including ready mix concrete blocks are statutorily exempt from sales tax. Exemption on bricks was primarily granted because of collection difficulties, while exemption on building blocks of cement and ready mix concrete blocks was granted for equity reasons. The excise duty on cement is likely to disappear in phases and there is no exemption of sales tax on steel products, sanitary goods, paints and wood or wood products and other construction materials.
Ready mix concrete blocks are generally manufactured by organised or semi-organized regimes, while there is no income tax relief to brick kilns. In commodity sector, sales tax must reach where income tax can reach. It is therefore, proposed to withdraw exemption on bricks and building blocks of cement and ready mix concrete blocks in budget 2011-2012 with negligible revenue impact.
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