TUESDAY MAY 10: Import and local supply: ST exemption on Defence stores may be withdrawn

ISLAMABAD: The government is likely to withdraw sales tax exemption on import and local supply of defence stores and will make appropriate readjustments in the defence budget allocations. An official provisional document of federal budget 2011-12 shows that the government will eliminate gas refunds through rationalisation of price of gas as gas distribution companies have to pay more input tax than output tax charged on supply of natural gas to consumers.
Capital goods (plants and machinery), including agriculture machinery and medical/diagnostic equipments, are expected to be zero rated. Sources said that sales tax on local supply of sugar is chargeable at 8 percent as against standard rate of 17 percent on import. However, there is no customs duty on import of sugar. The Federal Board of Revenue (FBR) has proposed to convert sales tax at 8 percent into federal excise duty (FED) on domestic supplies and replace sales tax at import stage into 8 percent FED and 8 percent customs duty.
The FBR has also proposed withdrawal of FED on cement, in phases, ie including three years commencing from 2011-12. During the first year, duty will be reduced by Rs 200 whereas afterwards it will be reduced by Rs 25 per ton during the next two years. Revenue loss shall be compensated by increase in legitimate trading of cement in local market.
Sources said that special excise duty of 1.5 percent will be discontinued from July 1, 2011. However, special excise duty at 1 percent shall continue. According to sources, filter rods are currently liable to excise duty at Rs 1 per filter rod. The average price of filter rod does not exceed Rs 14. Excise duty on filter rods at such high rate leads to lower production and compliance.
The FBR has proposed to reduce excise duty on filter rods from Rs 1 per filter rod to Rs 200 of the value. Meanwhile, the current rate of excised duty on green leaf tobacco (un-manufactured tobacco) is proposed to increase to Rs 10 per kg.