The Federal Board of Revenue (FBR) has proposed imposition of special excise duty (SED) on the import and local manufacturing of goods in the upcoming budget (2014-15). Sources told Business Recorder here on Sunday that the restoration of the SED is a major revenue generation measure with a projected revenue of Rs 8-10 billion in 2014-15. Ministry of Finance has received this proposal from FBR.
The rate of the SED has yet to be finalised by the budget makers, but in the past 2.5 percent SED was applicable. If the government intends to restore the old rate of the SED, it may range between 1 and 2.5 percent. However, it depends on MoF's decision on the proposal mooted by FBR.
In 2007, the Board had imposed one percent special excise duty (SED) on import and local manufacturing of goods from July 1. It issued SRO 655(I)2007 to levy SED on import and local manufacturing of goods specified in the First Schedule of the Customs Act, 1969. Later the rate was enhanced from one percent to 2.5 percent. The levy remained applicable for four fiscal years - 2010-11, 2009-2010, 2008-2009 and 2007-2008.
In the budget of 2011-12, the government abolished 2.5 percent special excise duty (SED) on all items. The Special Excise Duty was withdrawn to reduce the quantum of taxation on all items including those used by the middle and lower middle class of population. It was enforced through amendment in Federal Excise Act, 2005 and withdrawal of SRO 655(I)/2007, dated 29.06.2007, effective from July 1, 2011.
When the SED was imposed in 2007-2008, it was estimated to generate around Rs 16 billion. The amount of special excise duty was not made part of the value for assessment of customs duty, federal excise duty, sales tax or advance income tax in case of imported or locally manufactured goods. The SED paid at import or local supply stage on industrial inputs was adjustable against special excise duty chargeable on goods manufactured there from at local supply stage.
No other adjustment of special excise duty was allowed against any amount of federal excise duty or sales tax or any other tax or vice versa. Where goods on which special excise duty paid were exported, the exporter were entitled to drawback of such duty in such a manner and to such extent as may be directed by the Board.
In the past, SED was not be applicable on vegetables, seeds, edible oil, POL products, natural gas LPG, electricity, phosphoric acid, pharmaceutical products, fertilisers, gold and silver, tin plate, computer hardware, bitumen, currency notes as well as items classified in Chapter 99 of Pakistan Customs Tariff and temporarily imported goods under the Duty and Tax Remission for Exports (DTRE) scheme.
Moreover, items on which sales tax is zero-rated was applicable were not liable to special excise duty. In this regard, the Board has specified the list of all SROs relating to zero-rating at serial number 25 of the Table of SRO 655(I)2007 for the purpose of SED exemption.
This levy was also not applicable on imported goods subject to customs duty at the rate of zero-percent under Customs Act or any notification issued there under.
The value for the purpose of levy of special excise duty was: In case of goods imported, the value determined in accordance with section 25 of the Customs Act, 1969 (IV of 1969) for the purpose of assessing customs duty; and In case of goods produced or manufactured, the value determined under sub-section (1) or as the case may be sub-section (4) of section 12 of the Federal Excise Act, 2005, excluding the amount of excise duty levied under section 3 of the said Act.
When SED was applicable in the past, the special excise duty was also not applicable on the supplies made by the cottage industry and goods produced for subsequent export by the manufacturers.
Exemption from SED was applicable on imports made by privileged personnel organisations under grant-in-aid agreements; goods imported by various agencies of the United Nations; diplomats embassies; household articles including vehicles and goods for donation to projects established in Pakistan, imported by the rulers and dignitaries of UAE and Qatar.
In the past, the special excise duty was also not be applicable on goods supplied free of cost as replacement of identical goods previously imported; goods imported into and exported (except to tariff area of Pakistan) from the Export Processing Zones and any enactment relating to Gwadar Special Economic Zone and the levy was not applicable on un-cut precious and semi precious stones; polished semi-precious stones; jewellery casting powder; moulding rubber; injection wax; jewellery casting machines and accessories and other items.