The Federal Board of Revenue taxation measures to impose 10 percent federal excise duty (FED) on electricity intensive home appliances proved to be a wrong policy decision, as the total collection stood at Rs 0.18 billion during July-January (2010-11) against the projection of Rs 3.40 billion, reflecting a shortfall of Rs 3.22 billion.
Sources told Business Recorder here on Thursday that analysis of the taxation measures taken in budget (2010-11) revealed 10 percent FED levy on electricity intensive home appliances failed to generate additional revenue against the actual estimates in budget (2010-11). The rationale behind this taxation measure was that Pakistan is facing acute shortage of energy. Various measures have been taken to reduce the consumption of electricity ensuring that the burden did not affect the common man.
There are various electricity intensive home appliances like air conditioners, electric water coolers, refrigerators, deep freezers, electric microwave ovens and television sets. Most of the appliances are used by common man except air conditioners and deep freezers. Therefore, federal excise duty @ 10% was levied on manufacturing and import of air conditioners and deep freezers, which would have resulted in reduction of electricity consumption, generating some extra revenue.
Contrary to this, the actual collection of the FED on electricity intensive home appliances was Rs 0.18 billion during the period under review against the projections of Rs 3.40 billion, which is below expectation. The FBR has collected Rs 6.7 billion from enhanced rate of the FED on natural gas during July-January (2010-11) against Rs 3.5 billion in the same period last fiscal. The projected revenue from the enhanced rate of the FED on natural gas was estimated at Rs 5.80 billion during this period.
The FBR analysis of taxation measures taken in budget (2010-11) further revealed that the FBR would not be able to meet the target of imposition of the FED at the rate of Rs 1 per filter rod of cigarettes. The Board has collected Rs 0.03 billion as FED on filter rods against the projected target of Rs 3 billion, reflecting a shortfall of Rs 2.97 billion. In order to tap revenue' from manufacture of cigarettes by unregistered manufacturers, the FBR had imposed federal excise duty @ Rs 1 per filter rod (52mm to 132mm in length) which was adjustable by registered users whereas duty', will be collected at source from unregistered manufacturers.
According to the FBR analysis, the FBR has collected Rs 23.4 billion from upward revision of the FED from cigarettes during this period against Rs 22.1 billion during the corresponding period last fiscal. The FBR has collected Rs 5.1 billion by withdrawal of restriction of adjustment of the FED on beverage concentrate against Rs 6.2 billion in the same period last fiscal. The FBR has estimated that the revenue loss would be less than the estimated amount of Rs 3.75 billion. Previously, concentrate for aerated beverages in all forms and flavours (PCT Heading 2106.9010 and 3302.1010) were chargeable to Federal Excise Duty @ 50 percent ad valorem.
Unlike other excisable products such as cigarettes, adjustment of FED paid on beverage concentrate was allowed, only to the 'extent of 25 percent. Although as a general principle, excise duty is leviable on each stage of production separate, without any facility of adjustment, however, under 'Federal Excise Act, 2005, the facility for adjustment of duties of excise paid on input goods was allowed with the exception of notified goods '(presently beverage concentrate is the only such notified item - SRO650(l)/2005. In order to provide for 100 percent adjustment of FED paid on beverage concentrate, the relevant SRO 650(l)12005 was rescinded by the FBR having negative implications of Rs 3.7 billion, the FBR analysis added.