The government is likely to increase federal excise duty (FED) on beverages from 6 to 9 percent in the upcoming budget (2015-16) without creating any negative impression on the industry. Sources told Business Recorder here on Thursday that the budget makers are reviewing different proposals to make significant improvement in tax collection from beverage industry in 2015-16.
The Federal Board of Revenue (FBR) is considering different options to raise duties and taxes on the beverage sector without creating any negative impression. One of the options is to increase the rate of the FED on beverages where sales tax rate would remain unchanged. However, the proposal is yet to be finalised keeping in view revenue impact of the proposed increase of FED from 9 to 12 percent on beverages units in budget (2015-16). According to the FBR data of sales tax on 60 major sectors in 2014-15; effective rate of sales tax of concentrates used in beverages is 8 percent and effective rate of sales tax of aerated waters/beverages is 3 percent. This shows that the effective rate of sales tax on beverages is much lower than the standard rate of 17 percent.
The Federal Excise Duty and Sales Tax on Production Capacity (Aerated Waters) Rules, 2013 were repealed vide SRO 569(1)/2014 dated 26.06.2014. Thus, from 01.07.2014, aerated waters manufacturer shall revert to the normal tax regime, where FED is chargeable on beverages concentrate @ 50% of its value, and FED @ 9% and sales tax @ 17% is chargeable on aerated waters. Immediately on withdrawal of the scheme, concerned RTOs/LTUs conducted stock taking, and properly monitored the production and sales of aerated waters manufacturers. The already available information regarding production capacity and major input materials were used as benchmark to prevent under-reporting of production and sales suppression, if any.