ISLAMABAD: The International Monetary Fund (IMF) has recommended that the existing number of excisable goods is excessive and should be abolished on items generating insignificant revenue.
Sources told Business Recorder that the IMF has recommended the Federal Board of Revenue (FBR) to raise excise duty on luxury goods. The FBR should also apply the same rate of excise on all locally manufactured cigarettes, regardless of whether the manufacturer is local or foreign. The FBR should tax e-cigarettes in a similar way to tobacco, given equivalent internality, sources quoted IMF’s recommendation to the FBR.
Sources said that the presently excise duty is levied on a range of goods, including tobacco, aerated drinks, motor cars, cement, telecommunication services, and petroleum and natural gas products.
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IMF has recommended rationalising the system of excises, and reducing the spectrum of excises to only those that address negative externalities with respect to health effects and environmental damage, with the level of excises scaled better to the quantified level of externalities. This reform element must take into account the potential revenue losses from eliminating selected excises.
Sources said the excise rates for fuel products and tobacco items were increased substantially particularly those with negative externalities and inelastic demands such as tobacco and fossil fuel, notwithstanding the fact that the present number of excisable goods is excessive and should in the medium term be rationalized to eliminate those that generate insignificant revenue.
Sources said that the government should apply the “DPL tax” to any kind of machinery inputs that pollute and eliminate the accelerated depreciation to alternate energy projects, sources quoted IMF recommendation.
The FBR should increase border control to avoid smuggling of oil derivatives, especially from sensitive areas.
In the medium term, once revenue has increased, reduce the number of items taxed by eliminating excise duty that have none of the following features: (i); Negative externalities; (ii); large revenue potential; (iii); very inelastic demand or luxury aspects, sources said.
The FBR should progressively raise excise duty luxury goods such as yachts, sources referred to the IMF recommendation.
Copyright Business Recorder, 2024
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