MARKET DEVELOPMENT
5 Percent FED in Lieu of 5 Percent IT on Edible Oil: FBR Mulling Over Revenue Measures
5 Percent FED in Lieu of 5 Percent IT on Edible Oil: FBR Mulling Over Revenue Measures
17/04/2013 (Business Recorder) - The Federal Board of Revenue is examining pros and cons of a revenue generation measure that seeks to impose 5 percent Federal Excise Duty/Special Excise Duty in lieu of 5 percent income tax on the import of edible oil by all manufacturing units of vegetable ghee/cooking oil including those located in Federally and Provincially Administered Tribal Areas (Fata/Pata).
Sources told Business Recorder here on Tuesday that the ghee and cooking oil industry has moved the proposal to the FBR to remove discrepancy in the tax treatment between the units located in tariff areas and Fata/Pata. The industry argued that the proposal would not have any negative revenue impact as the same 5 percent withholding tax at the import stage could be replaced with the 5 percent Federal Excise Duty or Special Excise Duty. It is not a relief measure but provide equal tax treatment to units located in tariff areas as well as units operating in Fata/Pata.
The proposal is feasible because the Sales Tax Act, 1990 and Income Tax Ordinance, 2001 are not extended to tribal areas but Federal Excise Act, 2005 has been enforced in Fata/Pata. The proposal, if accepted by the tax authorities, would check revenue leakage to the tune of Rs 1 billion per annum bringing units of Fata/Pata at par with the units located other parts of the country.
When contacted, a senior FBR official said that it has yet to be confirmed whether the units located in Fata and Pata are practically not paying 5 percent withholding tax on the import of edible oil. As per a past judgement of Peshawar High Court, tax has to be paid at the import stage irrespective of destination of consumption of imported inputs, whether in tariff areas or Fata/Pata. This shows that all imports are subjected to withholding tax even consumed in tribal areas or tariff areas. The tax has to be collected at the import stage without any discrimination.
In case exemption of withholding tax is still available on imports of units in tribal areas, it would have to be checked with the relevant Model Customs Collectorate. Secondly, the FBR will have to analyse the aspect of the government policy of gradual phasing out of the FED on excisable commodities. The replacement of the withholding tax with the FED has to be seen writhen the context of the said government policy. If the government is committed to abolish FED on all commodities in a phase-wise manner, the rationale and revenue implications behind the said proposal has to be analysed thoroughly before taking any decision, official added.
According to the proposal of Pakistan Vanaspati Manufactures Association (PVMA) received by the FBR, the exemption of Income Tax (WHT) @ 5 percent is available to manufacturing units of vegetable ghee/cooking oil located in Federally and Provincially Administered Tribal Areas (Fata/Pata) on import of edible oil.
Prior to issuance of S.R.O140(1)/2013 dated February 26, 2013, the withholding tax (WHT) @ 3 percent in 'Minimum Mode' was applicable on import of edible oil by industrial concern located in settled areas. However vide said SRO the reduced rate facility has been omitted resulting into enhancement of rate up to 5 percent in 'Minimum Mode'.
Since Fata/Pata enjoys immunity against levy of taxes under Sales Tax Act, 1990 and Income Tax Ordinance, 2001, therefore, earlier in 2004-05 the Government of Pakistan levied Federal Excise Duty (FED) in lieu of Sales Tax on edible oil vide serial no. 1 of First Schedule read with section 3 of Federal Excise Act, 2005, sources said.
The rationale behind imposition of FED on edible oil @ 16 percent is to provide a level playing field to manufacturers of vegetable ghee/cooking oil located in settled areas and check the influx of products from un-settled (Fata/Pata) to settled areas.
As of now the manufacturing units of Fata/Pata are enjoying exemption of 5 percent WHT on import of edible oils in addition to total exemption of payment of sales tax on inputs like tin-plate, chemical, electricity, natural gas etc. Resultantly the units are at advantage of Rs 6,500 per metric tons (MT) over units located in the tariff areas with following break-down: Impact of Exemption of 5 percent withholding tax comes to Rs 5200/M.Ton and impact of exemption from sales tax on inputs has been worked out at Rs 1300/ton.
If the mentioned benefits are taken into consideration, the Fata/Pata units enjoy margins of Rs 6.50/Kg, which translates into Rs 39 Million per annum over units in tariff areas on average weighted monthly input/production of 5,000 tons. Consequent upon reasons, so stated, the closure of industry in settled areas is imminent, in near future, association said. In this back-drop, the government should consider remedial measures to safe guard its revenue and entire industry by imposing 5 percent Federal Excise Duty/Special Excise Duty in lieu of income tax at import stage to provide level playing field to the industries of tariff areas or in the alternate the rate of WHT be reduced from existing 5 percent to proposed 2 percent as final liability for units located in tariff area, association added.
Sources told Business Recorder here on Tuesday that the ghee and cooking oil industry has moved the proposal to the FBR to remove discrepancy in the tax treatment between the units located in tariff areas and Fata/Pata. The industry argued that the proposal would not have any negative revenue impact as the same 5 percent withholding tax at the import stage could be replaced with the 5 percent Federal Excise Duty or Special Excise Duty. It is not a relief measure but provide equal tax treatment to units located in tariff areas as well as units operating in Fata/Pata.
The proposal is feasible because the Sales Tax Act, 1990 and Income Tax Ordinance, 2001 are not extended to tribal areas but Federal Excise Act, 2005 has been enforced in Fata/Pata. The proposal, if accepted by the tax authorities, would check revenue leakage to the tune of Rs 1 billion per annum bringing units of Fata/Pata at par with the units located other parts of the country.
When contacted, a senior FBR official said that it has yet to be confirmed whether the units located in Fata and Pata are practically not paying 5 percent withholding tax on the import of edible oil. As per a past judgement of Peshawar High Court, tax has to be paid at the import stage irrespective of destination of consumption of imported inputs, whether in tariff areas or Fata/Pata. This shows that all imports are subjected to withholding tax even consumed in tribal areas or tariff areas. The tax has to be collected at the import stage without any discrimination.
In case exemption of withholding tax is still available on imports of units in tribal areas, it would have to be checked with the relevant Model Customs Collectorate. Secondly, the FBR will have to analyse the aspect of the government policy of gradual phasing out of the FED on excisable commodities. The replacement of the withholding tax with the FED has to be seen writhen the context of the said government policy. If the government is committed to abolish FED on all commodities in a phase-wise manner, the rationale and revenue implications behind the said proposal has to be analysed thoroughly before taking any decision, official added.
According to the proposal of Pakistan Vanaspati Manufactures Association (PVMA) received by the FBR, the exemption of Income Tax (WHT) @ 5 percent is available to manufacturing units of vegetable ghee/cooking oil located in Federally and Provincially Administered Tribal Areas (Fata/Pata) on import of edible oil.
Prior to issuance of S.R.O140(1)/2013 dated February 26, 2013, the withholding tax (WHT) @ 3 percent in 'Minimum Mode' was applicable on import of edible oil by industrial concern located in settled areas. However vide said SRO the reduced rate facility has been omitted resulting into enhancement of rate up to 5 percent in 'Minimum Mode'.
Since Fata/Pata enjoys immunity against levy of taxes under Sales Tax Act, 1990 and Income Tax Ordinance, 2001, therefore, earlier in 2004-05 the Government of Pakistan levied Federal Excise Duty (FED) in lieu of Sales Tax on edible oil vide serial no. 1 of First Schedule read with section 3 of Federal Excise Act, 2005, sources said.
The rationale behind imposition of FED on edible oil @ 16 percent is to provide a level playing field to manufacturers of vegetable ghee/cooking oil located in settled areas and check the influx of products from un-settled (Fata/Pata) to settled areas.
As of now the manufacturing units of Fata/Pata are enjoying exemption of 5 percent WHT on import of edible oils in addition to total exemption of payment of sales tax on inputs like tin-plate, chemical, electricity, natural gas etc. Resultantly the units are at advantage of Rs 6,500 per metric tons (MT) over units located in the tariff areas with following break-down: Impact of Exemption of 5 percent withholding tax comes to Rs 5200/M.Ton and impact of exemption from sales tax on inputs has been worked out at Rs 1300/ton.
If the mentioned benefits are taken into consideration, the Fata/Pata units enjoy margins of Rs 6.50/Kg, which translates into Rs 39 Million per annum over units in tariff areas on average weighted monthly input/production of 5,000 tons. Consequent upon reasons, so stated, the closure of industry in settled areas is imminent, in near future, association said. In this back-drop, the government should consider remedial measures to safe guard its revenue and entire industry by imposing 5 percent Federal Excise Duty/Special Excise Duty in lieu of income tax at import stage to provide level playing field to the industries of tariff areas or in the alternate the rate of WHT be reduced from existing 5 percent to proposed 2 percent as final liability for units located in tariff area, association added.