Chairman Federal Board of Revenue (FBR) Tariq Bajwa said on Thursday that the withdrawal of 10 percent Federal Excise Duty (FED) on motor vehicles exceeding 1800cc would ultimately increase sales tax collection on expected increase in local sales by car manufacturers in 2014-15.
During review of the Finance Bill (2014-15) at the Senate Standing Committee on Finance, the FBR Chairman said the imposition of 10 percent FED on vehicles exceeding 1800cc has resulted in major decrease in sales of the said category of vehicles. A dip of 90 percent has been witnessed in the local sales of the motor vehicles exceeding 1800cc due to 10 percent FED on such vehicles. The FBR was also losing sales tax on domestic production of such vehicles. The increase in production and sales of motor vehicles exceeding 1800cc would also increase sales tax collection in 2014-15, FBR Chairman said.
Joint opposition in the Senate recommended the Senate Standing Committee on Finance that the proposal of 10 percent FED withdrawal on vehicles above 180cc may be withdrawn. After hearing justification from the FBR Chairman, the committee dropped the proposal.
The government has withdrawn 10 percent FED on motor vehicles exceeding 1800cc. FED @ 10 percent was imposed on motor cars, Sports Utility Vehicles (SUVs) and other motor cars exceeding 1800cc through Finance Act, 2013. Increase in the prices have adversely affected sales resulting in decline in revenue besides hurting the local industry. Therefore, it is proposed to withdraw FED on locally manufactured motor vehicles exceeding 1800cc. The decision has been enforced through Finance Bill 2014, effective from July 1, 2014.
Tariq Bajwa said that the Board has revisited the entire SRO regime. The Members of the Senate Standing Committee on Finance could also become the part of the high-powered committee of the government engaged in reviewing the SRO regime. It is a very comprehensive exercise as only one SRO.565 is dealing with the 161 sectors.
Each sector has different SROs having revenue impact of sales tax, income tax, FED and customs duty. It is a complex exercise to identify the revenue impact of each SRO on specific sector with bifurcation of revenue loss of sales tax, income tax and FED. Responding to a query on effective date of SROs, he said that the FBR has not increased the tax rates through SROs. The federal government is legally empowered to revise the rates which have been done through the SROs with the approval of the government.
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