The collection on account of federal excise duty (FED) on international air travel, financial services, non-fund services provided by the financial institutions including banking companies, franchise services and commission/brokerage of foreign exchange dealers, exchange companies and money changers showed poor performance during the first quarter of 2006-07.
CBR analysis showed that even the upward adjustment of FED, due to increase in retail price of cigarettes, failed to increase revenue collection during the period under review. On the other hand, the FED collection from vehicles tracking services provided by the insurance companies showed improvement in July-September 2006-07.
The data analysis of services brought into the excise regime in the 2006-07 budget showed that international air travel was brought into the FED net to increase collection.
The collection from international air travel has been only Rs 188.7 million during first quarter of 2006-07. The FED at the rate of 5 percent was levied on the gross amount of commission/brokerage charged for services provided by foreign exchange dealers including money changers, to bring foreign exchange dealers into the fold of indirect taxation. A paltry amount of Rs 0.008 million has been collected during the first three months of the current fiscal year.
The revenue collection from franchise services showed a similar trend during the period under review. The franchise business has flourished to a great extent in the last few years, especially in the field of food and beverages.
In order to expand the taxation of service sector, the franchise services were subjected to FED. However, only a meagre amount of Rs 18.2 million has been realised from this source during July-September (2006-07).
The report said that FED was levied on non-fund-services provided by the financial institutions including banking companies. While there is a large scope of revenue from this source, only a limited sum of Rs 103.9 million has been realised, which is very low as compared to the proportionate estimates of Rs 550 million for the first quarter of 2006-07. It is anticipated that this amount will increase substantially in the coming quarters as the necessary spadework has been completed.
About the cigarette industry, the report said that an upward adjustment in FED was made through increased retail prices of cigarettes by 7 percent. However, collection from cigarettes remained stagnant at around Rs 4.6 billion during the first quarter of 2006-07 against the same period of 2005-06. If natural growth factor is estimated at 14 percent, total impact of this measure would have caused a loss of around Rs 0.6 billion in the first quarter (2006-07) against the corresponding period of last year. The growth in the production has been impeded by the increased prices. During July-September 2006, the production grew by only 1.3 percent but the sale of cigarettes declined by around 36 percent.
The report has specified that value-added telecom services, like vehicles tracking service, etc, were brought into the excise regime. An additional collection of Rs 22 million has been recorded during first three months of the current fiscal year.
Due to quite lower rate, the tax collection from insurance companies has been considerably low.
So, the rate of all insurance companies, except life insurance companies, was enhanced to 5 percent from 2006-07.
This policy initiative improved the collection from Rs 205.2 million in July-September, 2005 to Rs 392.8 million in July-September, 2006. Thus, an additional tax collection of Rs 187.6 million has been realised.
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