ISLAMABAD: In the aftermath of failure of two-tier specific rates structure for the cigarettes manufacturing sector, the Federal Board of Revenue is likely to revert to Federal Excise Duty (FED) rates on cigarettes charged prior to the budget 2013-14.
According to details, the tax authorities including FBR Member Inland Revenue Operations, visit to Large Taxpayer Unit (LTU) Karachi expressed reservations over the existing FED slabs for cigarettes. They expressed their surprise that despite introducing two-tier rate structure for tobacco sector, the FED collection could not be increased in 2013-14. The authorities also directed the LTU Karachi to ensure maximum revenue collection from tobacco sector to decide whether or not continued with the newly introduced rate structure.
It is to be noted that the FBR has categorically directed its Chief Commissioners to ensure collection of targeted FED to achieve the revenue target set for the fiscal year.
During the budget preparation exercise, the FBR had drafted its own proposal for collection of the FED on cigarettes. As per initial proposal, under first proposed slab, if retail price exceeds Rs50 for 20 cigarettes, the FED rate will be 65 percent of the retail price. The second proposed slab reveals that if retail price does not exceed Rs50 for 20 cigarettes, the FED rate will be 25 paisa per stick plus 50 percent of retail price. The existing three slabs have been proposed to be replaced by two FED slabs on cigarettes. The existing upper-tier slab, middle-tier slab and lower-tier slab have been merged into two simple slabs of the FED.
In view of the FBR’s proposal, the rate of excise duty will increase with the increase in the prices of cigarettes which will ultimately raise FED collection. On the other hand, as per FED structure notified in budget, the FED rate on cigarettes has been fixed i.e if prices of cigarettes change, the FED rate will not be revised. In the second half of 2013-14, the FBR has the option of promulgation of a Presidential Ordinance following persistent non-compliance by the multinational cigarette manufacturing companies during 2013-14.
