ISLAMABAD: The Pakistani government is reportedly considering various proposals to increase the Federal Excise Duty (FED) on a range of items as part of its revenue generation strategy for the upcoming budget. Sources indicate that these potential hikes are being explored on the indirect tax side.
Among the proposals being reviewed is a significant increase in the FED on energy drinks, potentially doubling the rate from the current 20 percent to 40 percent.
FED as a key revenue tool
The Federal Board of Revenue (FBR) previously utilized FED as a substantial revenue tool, imposing or raising duties on different items to generate approximately Rs289 billion in the fiscal year 2024-25. The current review of FED rates is part of ongoing efforts to maximize revenue collectiokn.
Presently, the FBR is also reviewing proposals to adjust the FED rates on juices and aerated water. However, officials stress that no final decisions have been made regarding these items. It’s worth noting that in February 2023, the FED on all types of aerated water was increased from 13 percent to 20 percent, and a 10 percent FED was imposed on sugary fruit juices, syrups, and squashes.
The FBR is also examining the current FED structure on cigarettes. However, sources have clarified that there is no proposal to re-introduce a third tier for cigarettes.
Interestingly, sources revealed that just last month, proposals were floated to potentially reduce tax rates on beverages and tobacco. The aim was to stimulate volumes and transactions in these sectors to generate additional revenue during the April-June quarter of 2024-25. However, these proposals were ultimately dropped, and the focus has now shifted to assessing the potential impact of raising the FED on these items.
Recent and existing FED measures
The government has previously implemented FED increases on several other items. This includes raising excise duty on international air travel and applying an FED of Rs 15 per kg on the supply of white crystalline sugar by any person to a manufacturing, processing, or packaging entity. Last year, the FED on cement was also increased from Rs 3 per kg to Rs 4 per kg.
Furthermore, the Finance Act, 2024, saw the imposition of FED on new items, including a duty of Rs 44,000 per kg on acetate tow, Rs 1,200 per Kg on nicotine pouches, and five percent ad valorem on lubricating oil.
The ongoing review of FED rates on various items signals the government’s intent to lean on indirect taxation as a means to boost national revenue in the upcoming budget.
