We have been receiving many queries from our clients, after the recent budget presentation, as to what are the key proposals for Customs, Excise and Taxation areas and how these may affect them. Here are a few observations and proposals for the year 2014-15. For more information on how these changes may affect your business, you may send us an email at firstname.lastname@example.org
It has been proposed that Customs duty be exempted on import of plant machinery and equipment for setting up fruit processing and preservation units in Gilgit-Baltistan, Makran and Malakand In order to encourage industrialization and to promote fruit processing.
In order to encourage industrialization and to generate employment, it is proposed that plant, machinery and equipment imported for setting up industries in FATA, may be exempted from whole of customs duty.
Generators between 375 KVA to 1100 KVA are subject to 15% customs duty whereas generators above 1100 KVA are at 0%. It is proposed that customs duty @ 5 % on import of generators above 1100 KVA (PCI code 8502.1390) may be levied.
Dyes of different types (PCI code 32.04) are subject to different rates of customs duty ranging from 0% to 15% resulting in distortion and misclassification. Therefore, it is proposed that a uniform rate of 15% customs duty may be levied on all types of dyes except basic dyes (3204.1300) and indigo blue dyes (3204.1510), which are being used in textile sector (Annex-XIV).
CDs containing software (PCI code 8523.4910) are subject to 5% customs duty whereas CDs containing audio and video materials, blank CDs and DVDs are at 20%. It is proposed that a uniform rate of customs duty on all kinds of CDs and DVDs of PCI codes 8523.4000 and 8523.4900) @ 10% may be levied.
In order to facilitate general public, it is proposed that customs duty on UPS (PCT code 8504.4010) may be reduced from 20% to 15%. However, duty rate on other converters (PCI code 8504.4090) is proposed to be enhanced from 10% to 15% to avert a misdeclaration.
At present, mixed food seasonings (PCT code 2103.9000) are at 30% customs duty whereas flavouring powders (PCI code 2106.9030) are subject to 10%. It is proposed that customs duty on flavouring powders (PCI code 2106.9030) may be enhanced from 10% to 20%.
Last year, the exemption of duty & taxes was restricted to 2500 cc which resulted in negligible import of HEVs above 2500cc. Therefore, it is proposed that the concession on imports of HEVs may be further rationalized as follows:
1 Up to 1200cc 100% 50%
2 1201 cc to 1800cc 50% 50%
3 1801 cc to 2500 cc 25% 25%
4 Above 2500 cc No concession 25%
Duty and taxes on used vehicles were fixed in 2005 which were revised in 2008 to cater for increase in prices. It is proposed that fixed amounts of duty and taxes on used vehicles may be revised upward by 10% (approx.), as given below: –
1. Up to 800 cc US$4400 US$4800
2. 801 cc to 1000 cc US$5500 US$6000
3. 1001 cc to 1300cc US$11,000 US$12,000
4. 1301 cc to 1500cc US $ 15,400 US $ 16,900
5. 1501 cc to 1600 cc US$18,700 US$20,500
6. 1601 cc to 1800 cc US$23,100 US$25,400
LEGISLATIVE CHANGES IN THE CUSTOMS ACT, 1969 The following legal changes are proposed in the Customs Act, 1969: –
(a) Section 2 of the Customs Act, 1969;
Clauses (k) and (m) are proposed to be merged in a single definition of “customs-station”.
(b) Section 7 of the Customs Act, 1969;
The words “Central Excise” are proposed to be substituted with the word “Federal Excise”.
(c) Section 18 of the Customs Act. 1969;
Fifth Schedule is proposed to be added to the Customs Act, 1969 to charge specified rates of customs duty on goods and class of goods. Accordingly a new sub-section 18 (IA) is inserted to add the said schedule.
(d) Section 16A of the Customs Act, 1969;
The words “Central Excise and Salt Act, 1944” are proposed to be substituted with the words “Federal Excise Act, 2005”.
(e) Section 25 of the Customs Act, 1969;
To ensure rational applicability of valuation data in cases of imported goods, clause (d) of sub-section (5) of section 25 is proposed to be omitted. Resultantly, reference to clause (d) in sub-section (6) is also proposed to be omitted.
(f) Section 32 of the Customs Act, 1969;
The word “taxes” is proposed to be inserted in sub-sections (2), (3) and (3A) to recover non-levied and short levied taxes.
(g) Section 80 of the Customs Act, 1969;
The words “taxes and other charges levied thereon” are proposed to be inserted in sub-section (3) of section 80 to include taxes and other charges on reassessment of goods.
(h) Section 81 of the Customs Act, 1969;
For uniformity of the two provisions in sub-section (1), the words “taxes and other charges levied thereon” are proposed to be inserted.
(i) Section 185B of the Customs Act, 1969;
Under the Control of Narcotics Substances Act 1997, cases involving narcotics and narcotic substances are to be tried in Special Courts created under the said Act. Necessary change is proposed in this section.
(j) Section 194 of the Customs Act, 1969;
In Sub-sections (3) of section 194 the words “Customs and Excise Group” are proposed to be substituted by “Customs Service of Pakistan” in line with section 202B. Further, the word “five” is proposed to be substituted with the word “three” to bring experience of a senior Collector for appointment as technical member of the Appellate Tribunal, at par with section 130 of Income Tax Ordinance, 2001.
Sales Tax on Steel Sector
Steel billet/ingot manufactured by steel melting industry and ship plate produced by the ship breaking industry are the raw materials for the production of MS bars etc. Steel melters and re-rollers presently pay sales tax (c) Rs 4 per unit of electricity under Sales Tax Special Procedure Rules, 2007. This works out to less than 5% of price of billet and mild steel products, and is much less than the standard sales tax rate of 17%.
Similarly, ship-breakers pay sales tax @ Rs 5,862 per MT, which is about 10% of price of ship plate. Import of re-meltable scrap is subject to sales tax Rs 1,600 per MT or 5% of import value (whichever is higher), which is fully adjustable against the sales tax payable by a melter/re-roller through his electricity bill. In order to rationalize the tax structure on these competing industries of the steel sector, it is proposed to:
(i) Increase the rate of sales tax paid by steel melters and re-rollers to Rs 7 per unit of electricity
(ii) Increase the rate of sales tax on supply of ship plate payable by ship breakers to Rs 6,700 per MT
(iii) Enhance the rate of sales tax on import of re-meltable scrap to Rs 5,600 per MT with adjustment allowed only to extent of the quantity used in manufacturing.
SALES TAX PAYABLE BY STEEL MELTERS IN SUGAR MILLS
Steel melting furnaces are being set up in the sugar mills. Sales tax on their products cannot be recovered through electricity bills like other steel melters, because they use self-generated electricity from bagasse, a by-product of sugar production. It is, therefore, proposed to bring them under normal sales tax regime, with benchmarking on the basis of installed transformer capacity and installation of tamper-proof electricity meters on the transformers.
REGISTRATION OF RETAILERS
At present, retailers having annual turnover above Rs 5 million are required to be registered, and sales tax is payable on concessionary rates on the basis of their quarterly turnover. The highest rate is Rs 6250 plus 0.75% of the turnover. However, despite this low tax rate most of the retailers still remain non-compliant. In order to bring retailers into the tax net, following two-tier regime for sales tax is proposed. The first tier shall comprise of:
(a) Retailers who are part of national or international chains, or are located in air-conditioned shopping malls, or have credit or debit card machines, or having electricity bill exceeding Rs 600,000 for the past 12 months (Rs 50,000 per month). They are proposed to pay sales tax under the normal regime of 17% and to install Electronic Cash Registers, as per approved specifications.
(b) The remaining retailers shall fall in the second tier, who are proposed to pay sales tax through their electricity bills at the following rates:
(i) 5% of monthly electricity bill up to Rs 20,000.
(ii) 7.5% of monthly electricity bill above Rs 20,000.
FED on Motor Vehicles
FED @ 10% was imposed on import and local supply of motor cars, sports utility vehicles (SUVs) and other motor cars exceeding 1800cc through Finance Act, 2013. Resultant increase in the prices have adversely affected sales causing decline in revenue, besides hurting the local industry. Therefore, it is proposed to withdraw FED on locally manufactured motor vehicles exceeding 1600cc.
REDUCTION IN RATE OF FEDERAL EXCISE DUTY ON TELECOMMUNICATION SERVICES
Federal Excise Duty is chargeable @ 19.5% on telecommunication services, it is proposed to reduce rate of Federal Excise Duty to 18.5%, in view of increase in the scope of telecommunication services with the advent of 3G and 4G technologies.