In case the proposal of charging taxes on capacity basis has been finalised, the same would be implemented through a notification under section 3(3)(a) of the Federal Excise Act, 2005 which empowers the Board to charge FED on any good on production capacity basis through a notification.
Official explained that sugar industry has always been meted out a preferential and favourable treatment for tax purposes. All goods are chargeable to sales tax or FED at standard rate but sugar is currently chargeable to 8 percent FED. Additionally, local supply of sugar equivalent to the quantity exported is chargeable to Federal Excise Duty at a further reduced rate of 0.5 percent. This special tax treatment results in loss to the exchequer and leads to undue enrichment of sugar manufacturers at the expense of exchequer.
The FBR was of the opinion that special treatment of sugar sector may be abolished to bring it at par with all other sectors and to achieve this goal the rate of FED on sugar may be increased to the standard rate of 16%. Sources said that sugar industry has intimated that some of the sugar manufacturers are indulged in evasion which distorts the market as well as puts extra burden on fair taxpayers. To arrest the menace of evasion, the FBR placed sugar industry under supervised clearance in February, 2013 which positively contributed towards revenue collection. In order to curb this evasion some members of the industry have proposed that tax/duty on sugar may be charged on capacity basis so that all sugar mills are equally taxed with no room available for evasion or leakage of revenue.
The proposal of sugar industry has not yet been formally received in the FBR and Board may comment on this proposal only on receipt of the formal proposal. Meanwhile, it is proposed the rate of FED may be increased from 8 percent to 16 percent through an amendment in the Federal Excise Act, 2005 in the Budget. In case the proposal of sugar industry appears feasible, the scheme of charging tax/duty on capacity basis can be later on implemented through a notification under section 3(3)(a) of the Federal Excise Act, 2005 which empowers the Board to charge FED on any good on production capacity basis through a notification.
Sources said that the average collection from sugar industry is Rs 11,350 million per annum. The calculation has been based on the year when either sugar was assessable on a very low value from Rs 25.50 per kg to Rs 28.88 per kg or was chargeable to reduced rate of 8 percent of sales tax or FED which makes it even less than 50% average collection from this sector as compared to the standard rate of sales tax or FED chargeable on all other goods. However, for the sake of calculation, even if it is assumed to be 50 percent collection from sugar sector, the estimated increase of revenue collection by enhancing the rate of FED on sugar from 8 percent to 16 percent will be around Rs 11 billion per annum. Any proposal of the sugar industry to collect FED on production capacity basis must ensure collection equivalent, if not higher, to the collection estimated under increase from 8 percent to 16 percent, the official added.