Revenue generation: Some key budgetary proposals ignored

SOHAIL SARFRAZ

ISLAMABAD: The government has not accepted some of Federal Board of Revenue's (FBR) major budgetary proposals having a revenue impact of more than Rs26 billion in fiscal 2012-2013, sources told Business Recorder on Sunday.

In the budget for next fiscal year (2012-2013), total taxation measures would generate revenue worth Rs63 billion and relief measures costing Rs31.22 billion would result in a net revenue effect of Rs31.772 billion in 2012-13.

If revenue generation measures of over Rs26 billion had been included in the Finance Bill (2012-2013), the impact of the total taxation measures would have been over Rs89 billion.

Proposals ignored by the government included the withdrawal of Prime Minister's tax incentive package to Khyber-Pakhtunkhwa/tribal areas, increase in the rate of Federal Excise Duty (FED) from Rs1 per kg to Rs4 per kg on the import of edible oil. Other proposals disregarded by the government included 50 percent FED on liquor and alcoholic beverages, sales tax be charged on the basis of printed retail price of cement, fertilizers, lead batteries and bottled water, 16 percent sales tax on sugar. Another of the ignored proposal was reduction of sales tax from 16 to 5 percent on import of all industrial raw materials.

Sources said that the FBR had expected revenue of Rs10 billion from the imposition of the 16 percent sales tax on sugar. The FBR had proposed that FED on sugar should be withdrawn and application of standard rate of sales tax at 16 percent.

The withdrawal of the PM's economic stimulus package for KPK and tribal areas would have resulted in a saving of Rs10 billion. The package was offered to the province and tribal areas to offset the effects of natural disasters and war on terror in 2010.

The FBR had calculated to generate Rs100 million by imposition of 16 percent sales tax on imports, supply of ships/aircraft. However, the proposal was not made part of the Finance Bill (2012-2013). Similarly, the FBR had estimated revenue impact of Rs1 billion by imposition of the sales tax on agricultural diesel engines and other agriculture machinery, equipment and implements.

The FBR had estimated to earn revenue of Rs200 million from levying FED on liquor and alcoholic beverages at 50 percent ad valorem. The maximum rate of FED should be imposed on alcoholic beverages to increase their prices and discourage their consumption. The proposal of FBR was also not made part of the Finance Bill.

The FBR had estimated a revenue of Rs3 billion from the increase in the rate of Federal Excise Duty (FED) in value-addition mode from Rs1 per kg to Rs4 per kg on the import of edible oil.

The FBR had estimated to collect Rs3 billion by charging sales tax on the basis of printed retail price of cement, fertilizers, lead batteries and bottled water. The FBR proposal said: "To fully capture the incidence of sales tax upto retail stage, it is proposed that following items may also be included in 3rd Schedule of the Sales Tax Act: Cement, fertilizers, bottled water and lead batteries".

The government also rejected the proposal to insert cement, fertilizers, lead batteries and bottled water in the Third Schedule of the Sales Tax Act, 1990, so that sales tax be charged on the basis of printed retail price.

The FBR's proposal on the reduced rate of sales tax on industrial raw material said: "Currently, sales tax at the rate of 16 percent is collected at import stage. Imported goods include industrial raw materials, which were ultimately claimed as output tax against the payable sales tax. The net revenue to the government was neutral, as the whole amount was claimable against output tax. "This higher rate of tax leads to increase in the cost of doing business as the funds were blocked on raw materials imported; chances of abuse of  input tax through flying invoices and increases the incentive to engage in under invoicing and abuse of Afghan Transit Trade. It is proposed that sales tax at import stage on industrial raw materials be reduced to 5%. The revenue impact would be overall neutral".