The Securities and Exchange Commission of Pakistan (SECP) has proposed exemption of Federal Excise Duty (FED) on livestock insurance along with crop insurance in the upcoming budget (2012-13). It is learnt here on Monday that the SECP has submitted its budget proposal to the FBR in this regard. The SECP has also proposed that premium paid on Livestock Insurance should also be exempted from the levy of FED.
Details of the proposal revealed that the penetration of livestock insurance is the lowest in Pakistan when compared to other countries of our region. To promote the penetration of livestock insurance in Pakistan and to make it affordable for the farmers, the levy of Federal Excise Duty should be exempted.
According to Clause 7(i), heading No 9813.1100, of table II(Excisable Services), first schedule to the Federal Excise Act 2005, FED will be charged at the rate of 16% of the gross premium paid on services provided or rendered in respect of insurance to a policy holder by an insurer, including a re-insurer in case where direct insurance services has been provided. Table II of Third Schedule exempt life, health and crop insurance. It is proposed that premium paid on Livestock Insurance should also be exempted from the levy of FED.
The SECP has also asked the FBR to exempt the Lease Rental from the Scope of Federal Excise Duty. The leasing is financing arrangements between the lessor and lessee. The services provided by banking companies or non-banking financial companies (falling under HS Code 98.13 of Pakistan Customs Tariff) are liable to pay Federal Excise Duty (FED) @ 16% of the charges (clause 8 of Table II of 1st Schedule to the FED Act). However, mark-up or interest and Musharika / Modaraba financing is specifically excluded from the purview of FED under Rule 40A(4) and 40A(2) of the rules respectively. Such exemption is further fortified in view of SRO 474(I)/2009 dated 13 June 2009 issued by the Federal Government under Section 16(2) of the Act.
It is proposed that lease rental should also be excluded from the purview of FED to provide a level playing field, SECP added. In light of the above, the following is proposed in the Rule-40A of Federal Excise Rules 2005: "Special procedure for collection of excise duty on services provided by banking companies, financial institutions and non-banking.
The duty under these rules shall be paid by the banking company or financial institution or non-banking finance company on the gross amount charged for service provided to the customers, excluding mark-up or interest and lease rentals, proposed amendment added.