The Federal Board of Revenue (FBR) has strongly opposed a proposal of Khyber Pakhtunkhawa government to impose Federal Excise Duty (FED) on local production of crude oil as it would substantially raise prices of petroleum products and required to be imposed at import stage.
Shahid Hussain Asad Senior Member (Inland Revenue) Policy Federal Board of Revenue (FBR) informed Senate Standing Committee on Finance Wednesday that any move to impose FED on locally produced oil would increase prices of petroleum products across the country. Moreover, the government has to impose FED on oil at import stage to bring uniformity in collection of the FED both at domestic and import stages.
The government of KPK has proposed the federal government for imposition, collection and payment of Federal Excise Duty on oil as per Article 161(1)(b) of the Constitution. According to Shahid, if the federal government imposes FED on locally produced oil on the request of KPK, the remaining provinces will also demand to imposition of the levy on local oil. The overall impact would be sharp raise in the prices of petroleum products. The FBR is already collecting sales tax on POL products and sales tax is being adjusted as per price of each product.
He said that the FBR has submitted the factual position of the issue to the committee saying that such a situation can arise in case locally produced oil is subjected to FED. Shahid Hussain Asad said that the federal legislature under its law making powers can levy excise duty under entry No 44, Part 1 of Fourth Schedule of the Constitution. Accordingly, Federal Excise Duty on local production of crude oil can be levied and collected by federal government under section 3 of Federal Excise Act, 2005 read with a prescribed rate in the First Schedule on the same analogy on which the excise duty has already been imposed on gas.
At present Excise Duty on natural gas in gaseous state is applicable @ Rs 10 per Million British Thermal Unit (mmbtu). Similarly, Excise Duty on per liter or per barrel basis can also be imposed at oil wells. As per Article 161(1)(b), the net proceeds of Federal Excise Duty on oil levied at well-head shall not form part of Federal Consolidated Fund and shall be paid to the Province in which the well head of oil is situated. According to President's Order 5 of 2010 (to provide for distribution of revenues and certain grants), the phrase "net proceeds" means in relation to any tax, duty or levy, the proceeds thereof reduced by the cost of collection as ascertained and certified by the Auditor-General of Pakistan. As no oil well is present in ICT area, federal government will have only collection charges deducted from the amount of Excise Duty paid to provinces, he said.
However, on imposition of this new levy, being an indirect tax, cost of crude oil will increase and OGRA will increase the final consumer/retail price keeping in view the amount of excise duty imposed on local production of crude oil. Accordingly, excise duty is also required to be imposed at import of crude oil to maintain a balance. At present, no excise duty is applicable at import stage, he maintained.
Earlier, it has been proposed by Government of KPK to levy Federal Excise Duty @ Rs 1,000 per barrel and any hike of market prices of petroleum products due to imposition of this levy may be adjusted from PDL or GIDC. Since both PDL and GIDC are domains of Ministry of Petroleum and Natural Resources, the views/comments on this matter may be taken from the concerned Ministry, Shahid Hussain Asad added.
On the issue of eclipsing provincial taxes through withholding tax, FBR Senior Member (Inland Revenue) Policy said that the Advance Income Tax is required to be collected by owners of marriage halls, wedding lawns, clubs etc from a person holding a function in such places. This withholding tax is an advance income tax of a person arranging the function not in marriage hall, wedding lawn or club which is ultimately adjustable from total income tax of that person paid for the relevant tax year. Similarly adjustable advance Income Tax is collected from the subscriber using telecom services. Further no federal excise duty has been imposed on these services. Therefore, the federation has not imposed heavy withholding income taxes or federal excise duty through which the Provincial Taxes are eclipsed.
The KPK government has also proposed special concession to the industries located in Khyber Pakhtunkhawa on account of war/conflict zone, in the following taxes. The FBR official responded that no such proposal is under consideration to grant special concessions to the industries located in the Khyber Pakhtunkhawa as it creates market distortions and any special treatment is detrimental to the identical industrial units operating in other provinces. However, special concessions to the industries located in KPK on account of war/conflict zone, in respect of taxes have been granted. In case of customs duty, machinery and equipment are already at lowest slab of 5 percent customs duty, whereas, industrial raw materials are also subject to minimum slab of 2 percent and 5 percent of customs duty. In the Budget 2014-15, exemption of customs duty was allowed on import of plant, machinery and equipment for setting up of fruit processing and preservation units in Malakand Division. Moreover, plant and machinery are also exempt from Customs Duty for setting up industries in FATA up to 30th June, 2019. In the Budget 2015-16, relief measures have been announced for Khyber Pakhtunkhawa. The exports of perishable goods namely fruits, vegetables, dairy products and meat being allowed against Pak currency instead of dollars w.e.f. July 1, 2015.
Quota of ghee and vegetable oil under DTRE for export to Afghanistan and Central Asia being enhanced from 1000 Metric Ton per 90 days to 1000 Metric Ton per month, he maintained. Five-year income tax exemption has been granted under clause (126 L) of Part 1 of the Second Schedule to Income Tax Ordinance 2001 through Finance Act 2015 to profits & gains of an industrial undertaking set up in KPK & Balochistan w.e.f July 1, 2015 to June 30, 2018, Shahid Hussain Asad added.
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