The Federal Board of Revenue (FBR) has received post-budget (2014-15) proposals of the Ministry of Industries and Production for setting up two zones for collection of sales tax on cement on the basis of Maximum Retail Price (MRP) across Pakistan; phase-wise abolition of the excise duty; restoration of zero-percent customs duty on the import of coal and issues pertaining to duty drawback on exports of cement to Afghanistan.
Sources told Business Recorder here on Saturday that the FBR has received a detailed presentation of the Ministry of Industries and Production to resolve problems faced by the cement industry according to Finance Act, 2014. In the proposals received by the FBR, cement industry have certain reservations on several issues relating to Federal budget 2014-15. All Pakistan Cement Manufacturers Association have brought several issues along with proposed solution, Ministry of Industries and Production said.
The first issue is the inclusion of cement sector in Third Schedule of Sales Tax Act, 1990. Through Finance Act, 2013 the basis of sales tax collection on cement has been changed from ex-factory price to maximum retail price by placing it under the Third Schedule to the Sales Tax Act, 1990. Before promulgation of Federal Budget 2013/2014, cement was sold through wholesale mechanism and sales tax was collected on ex-factory prices for different market areas. Under the current scenario, cement manufacturers are required to collect sales tax on the single highest or Maximum Retail Price (MRP) prevailing in Pakistan [ie price fixed by manufacturer inclusive of all duties, charges and taxes excluding sales tax].
Collection of sales tax on the basis of single MRP across Pakistan is anomalous as dynamics of each province and region are different. This will ultimately force manufacturers to restrict sales tax only to nearby market areas and stop sales to far flung areas where chances of parallel market getting established increase which go against FBR's revenue generation measures.
To resolve the issue, composition of the two zones is proposed for Maximum Retail Price as under: North and South. North Zone would comprise Punjab; KP; Fata; Azad Jammu & Kashmir and Northern Area. South Zone would comprise Sindh Province and Balochistan. Cement industry has requested that composition of two zones, as described above, may kindly be approved and notified on priority basis.
The Ministry of Industries and Production further proposed that the cement despatches is subject to Federal excise duty and general sales tax. In the Federal Budget for the financial year 2014-15, Federal excise duty has been shifted to 5 percent of Retail price from fixed Rs 400 per ton, which increases the rate of duty by Rs 10 per ton. These taxes come to around Rs 96 per bag. This incidence of high taxation encourages evasion and negatively impacts consumption.
Cement industry has requested that the government should reduce FED stepwise to zero as announced by the previous government to encourage cement off take, as this is not a luxury item. The cement industry raised another issue that the Custom duty @ 1 percent has been imposed only on indigenous coal in the federal budget for the financial year 2014-15. Cement industry of Pakistan is the predominant consumer of imported coal in Pakistan and consumes almost 95 percent of the 4.5 million tons imported annually. The cement industry has already spent millions of dollars in converting its process from the expensive furnace oil to coal. It is difficult to comprehend that while on one side, the government is encouraging coal based power generation, on the other hand it is imposing discriminatory tax on imported coal.