FBR to generate Rs9bn more revenue in FY19

RECORDER REPORT

ISLAMABAD: The Federal Board of Revenue (FBR) will generate additional revenue to the tune of Rs 9 billion from ghee and cooking oil sector during 2018-19. It includes revenue impact of around Rs 5 billion from doubling of additional customs duty from 1 to 2 percent and enhancement of customs duty on crude soybean oil and nearly Rs 4 billion from extension of income tax and sales tax on erstwhile Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata).

Experts told Business Recorder here on Friday that through budget measures 2018-2019, two changes have been incorporated with respect to applicable customs duty on import of edible oil and oil seeds. Firstly the additional customs duty @ 1 percent levied vide SRO 1178(I)/2015 dated 30th Nov, 2015 has been enhanced to 2 percent by rescinding above SRO through new SRO 630(I)/2018 dated 24th May, 2018. Secondly the custom duty on import of crude de-gummed soybean oil (CDSBO) PCT Code 1507.1000 has been increased from previous Rs 9,050 to revised Rs 10,500 per metric ton.

The tax experts maintained that import of edible oil is governed through ‘Special Taxation Procedure’ and hence it is subjected to Advance Income Tax (AIT) @ 5.5 percent in ‘Minimum Mode’ U/S 148(8) of Income Tax Ordinance, 2001. Moreover the product under discussion is granted exemption from sales tax vide entry # 24, sixth schedule of Sales Tax Act, 1990 and instead levied with Federal Excise Duty (FED) @ 16 percent ad valorem vide entry # 1 of table 1 of First Schedule read with section 3 of Federal Excise Act, 2005.

In addition FED @ Rs 1,000 PMT is also applicable in Value Addition Tax (VAT) Mode at import stage under SRO 24(I)/2006 dated 7th Jan, 2006 issued vide clause (b) of sub-section(3) of section 3 of the Federal Excise Act, 2005.

The tax experts said that after merger of Fata/Pata (non-tariff areas) with province of KPK in line with constitutional amendment, now the entire ‘Special Taxation Procedure’ is applicable on 5 ghee units located in Dargai, which were earlier enjoying exemption of AIT @ 5.5 percent and FED @ 16 percent since the IT & ST statutes were not extended to these non-tariff areas. The exemption from FED was granted recently by Peshawar High Court on a petition filed by units located in Fata/Pata making the FBR as respondent.

However, after passing of Fata/Pata Reforms Bill, the FBR has recently issued IT&ST SROs bearing number 887, 888, 889 & 890, all dated 23rd July, 2018, granting concessions on profits and gains derived by individual and Association of Persons (AOP) of Fata/Pata, provided that existing business setups register themselves with field offices of FBR by 30th September 2018. Provided further that the exemption under this clause shall be restricted to the association of persons and companies whose registered offices are in the Fata/Pata.

Abdul Waheed, a leading importer of edible oil in Pakistan and sitting Chairman of Pakistan Vanaspati Manufacturers Association (PVMA), endorsing the amendments incorporated in ‘Special Taxation Procedure’ expressed his concerns that over 85 percent of raw material consumed in manufacturing of Banaspati & cooking oil is import dependent, therefore, it has been hit the hardest by devaluation of PKR against US$, which seemed range bound between PKR 128 and 122. Despite all uncertainties and speculations the contracts for the months of August and September shipments have been materialized to cater for the demand-supply gap of these staple food items, Waheed added.

The manufacturers and importers are presently confronting huge financial risks by entering into highly volatile international edible oil market for future contracts and still formalizing and executing contracts with international trading houses in larger national and public interest.

The edible oil sector in its correspondence to FBR and meeting with tax authorities had explained that such move will automatically increase price of food items by Rs 5 to 6 per kilogram. Moreover, the measure would result in less import of soybean oil due to increased duty on this item. The replacement would result in increased imports of canola, sunflower and soybean oil seeds which are subjected to the lowest rates of duties and taxes.

Prior to budget (2018-19), tax experts said that the tax structure applicable on import of soybean seed was relaxed @ 3 percent customs duty, 6 percent sales tax and 5.5 percent advance income tax that too adjustable, whereas on import of soybean oil the structure was already too high as Rs 9,050 or about 12% customs duty, 16 percent sales tax and advance income tax @ 5.5 percent. Identical duty structure was applicable on all other edible oils imported in Pakistan such as RBD palm oil and olein.

A comparison of the taxation structure on the import of soybean seed and soybean oil before budget (2018-19) revealed that reduced rate of 6 percent sales tax is charged on the import of soybean seed which is against the FBR policy of charging a uniform rate of sales tax at 17 percent i.e. standard rate of sales tax. Under the FBR policy, the tax authorities had rationalized sales tax rates on a number of items bringing them on standard rate of 17 percent. At the same time, the lower rates of sales tax were increased to 17 percent under the same policy. However, discriminatory tax treatment on the imports of soybean seed is evident from the fact that a very low rate of sales tax has been charged at the import stage, creating serious disadvantages to the higher rates of taxes charged on the import of soybean oil/palm oil.