Normal tax regime from July 1: capacity tax rules for beverage industry to be rescinded

The Federal Board of Revenue (FBR) will rescind the Federal Excise Duty and Sales Tax on Production Capacity (Aerated Waters) Rules, 2013 for beverage industry after passage of the Finance Bill (2014-15) by the Parliament. Sources told Business Recorder here on Friday that the normal tax regime on the beverage industry would be applicable from July 1, 2014.
In budget (2014-15), the government has replaced capacity tax on aerated waters. The capacity regime has led to excessive litigation and the Lahore High Court has passed order against the scheme. Therefore, the existing scheme shall be reverted to the normal tax regime, which has been enforced through rescission of the Federal Excise Duty and Sales Tax on Production Capacity (Aerated Waters) Rules, 2013, effective from July 1, 2014.
The capacity tax was imposed in 2013 on aerated waters on the commitment of major manufacturers to enhance the revenue by 25 percent. However, the capacity tax scheme did not achieve the desired results and resulted into litigation. In budget (2013-14), the rate of federal excise duty on aerated waters was enhanced from 6 percent to 9 percent by amending S. No 4, 5 and 6 of Table I of the First Schedule to the Federal Excise Act, 2005. The enhanced rate came into effect on July 1, 2013. Hoverer, later the manufacturers of beverages and aerated water were allowed to pay capacity tax in lieu of the sales tax and Federal Excise Duty (FED) on the basis of production capacity of plants and machinery of units. The rules of capacity tax were made applicable to all manufacturers of aerated waters in Pakistan from July 1, 2013. Under this arrangement, the FBR had levied and collected federal excise duty and sales tax on the basis of production capacity of plants, machinery, undertakings, establishments or installations manufacturing aerated waters, in lieu of the federal excise duty and sales tax leviable.