FBR studying proposal for 7-8 percent FED levy on sugar

The Federal Board of Revenue (FBR) is examining a budget proposal to impose 7-8 percent federal excise duty (FED) on sugar to bring the rate at par with the standard rate of 17 percent sales tax on the commodity from fiscal year 2011-12.
Sources told Business Recorder here on Sunday that a budget proposal was discussed during the last meeting of the Revenue Advisory Council (RAC) to impose a lower rate of FED on sugar, keeping in view lower rate of sales tax on the commodity. The proposal is to impose 7-8 percent FED on sugar, without changing the rate of sales tax on sugar. However, the proposal is not final, but it has been discussed to impose some kind of excise duty on sugar.
Recently, the FBR has rescinded SRO.564(I)/2006 whereby sales tax was charged on sugar at the rate of Rs 28.88 per kg. Now, the sales tax would be assessed on the actual market price of sugar. The rate of sales tax on sugar would remain unchanged at 8 percent. The rate of sales tax on sugar was not increased while rescinding SRO 564(I)/2006. On the other hand, the standard rate of sales tax is presently 17 percent. There is a difference of 9 percent between the standard rate of sales tax as compared to the lower rate of ST applicable on the commodity. In case the FBR finalises the proposal to impose 7-8 percent FED on the commodity, the cumulative impact of the tax would be around 16 percent on sugar.
In the past, the FBR had repeatedly moved summaries to the Economic Co-ordination Committee (ECC) of the Cabinet to withdraw concessionary rate of 8 percent sales tax on sugar, as decrease in sales tax had failed to reduce the price of the commodity. The Board had submitted a summary to the ECC to restore 16 percent standard sales tax on sugar.
The government had reduced sales tax on local supply of sugar from 16 percent to 8 percent until further order. Following PM''s decision the FBR immediately issued the necessary notification in the past. At that time, the notification pertaining to the assessable value of sales tax was not rescinded. This decision was taken to reduce sugar prices in the local market, but reduction in sales tax did not helped in reducing price of the commodity.
Sales tax on sugar was drastically cut to control price of the commodity. Resultantly, the FBR suffered revenue loss due to reduction in sales tax. Secondly, directives were issued from the highest level to maintain prices of sugar. Despite all measures of the government, price of the commodity was not controlled which reflects that multiple factors are responsible for inflation.
The FBR had reduced the sales tax rate from 16 percent to 8 percent by August 2009, but this incentive did not reach the retail stage. Despite decrease in sales tax, the benefit was not passed on to the consumers.
When the FBR recently issued Presidential Ordinances and SROs to impose surcharge and sales tax on agricultural inputs and local supplies of zero-rated sectors, the FBR had rescinded SRO.564(I)/2006 and sales tax would now be assessed on the actual market price of sugar. However, the rate of sales tax on sugar remained unchanged at 8 percent.