The Federal Board of Revenue (FBR) has proposed a 6 percent non-adjustable Federal Excise Duty (FED) on sugar in budget (2014-15) to generate an additional amount of Rs 5-6 billion during next fiscal year. Sources told Business Recorder on Saturday that the FBR has proposed reduction in the FED from 8 to 6 percent on sugar. However, it has been proposed to replace 8 percent adjustable FED with 6 percent FED in non-adjustable (non-VAT) mode.
Ministry of Finance has received the budget proposal of the FBR to rationalise tax rate on sugar in 2014-15. According to the budget proposal, the FED @ 8 percent (in VAT mode) was levied on sugar in lieu of sales tax. Despite half of the standard rate, input tax is being adjusted by the sugar industry on standard rate of 17 percent. Moreover, the input tax is also being claimed against fertiliser, building materials and other goods & services which are not directly used for the manufacturing of sugar. As a result of applicability of FED on sugar, most of sugar supplies are made to unregistered persons without payment of 'further tax'. The 'further tax' is applicable on supplies to un-reregistered persons with the sales tax department but in case of sugar, FED is applicable on supply of the commodity. Thus, 'further tax' is not applicable in case of sugar. Therefore, it has been proposed to impose FED in non-adjustable (non-VAT) mode @ 6 percent on sugar.
During 2013-14, the marginal rate of 0.5 per cent FED was applicable to sugar as compared to 8 per cent. Tax incentive was given on the export of sugar by 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 had reduced the rate of the FED on the commodity from 8 per cent to 0.5 per cent taking into account the export quota of the mills.
In last budget (2014-15), the FBR made an attempt to enforce a new kind of taxation on sugar industry to collect sales tax/excise duty on capacity basis of the sugar mills to check evasion. But the proposal was not materalised. An expert said that sugar industry has always been meted out a preferential and favourable treatment for tax purposes. All goods are chargeable to sales tax or FED at standard rate but sugar is currently chargeable to 8 percent FED. Additionally, local supply of sugar equivalent to the quantity exported was chargeable to Federal Excise Duty at a further reduced rate of 0.5 percent. This special tax treatment results in loss to the exchequer and leads to undue enrichment of sugar manufacturers at the expense of exchequer. The special treatment of sugar sector should be abolished to bring it at par with all other sectors and to achieve this goal the rate of FED on sugar may be increased to the standard rate of 17 percent, expert added.
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