CBR to seek growth data from beverage firms head offices

ISLAMABAD (November 09 2005): The Central Board of Revenue (CBR) has decided to approach the head offices of the international beverage companies to determine the actual growth in the beverage industry for calculating the amount of federal excise duty (FED) due from them.

Official sources told Business Recorder on Tuesday that the CBR has directed Collector, Large Taxpayer Unit (LTU), Lahore, to contact the head offices of beverage manufacturers abroad to obtain the figure relating to growth of this industry in Pakistan, and reconcile revenue collection accordingly.

Meanwhile, a CBR report revealed that collection from beverages and beverages concentrate showed a mixed trend in terms of revenue collection during the four quarters of 2004-05. Varying between 56.9 percent and minus 13.6 percent growth in collection, its end of the year growth was 12.7 percent. The wide variations were essentially due to seasonal factors in 2004-05.

The CBR had turned down a proposal of beverage industry to reduce excise duty on beverage concentrate and on the sale of final product.

According to CBR, the beverage industry in Pakistan has grown over time. The industry produces aerated waters, juices, syrups, and squashes. With about 170 units currently in operation throughout the country, both upstream and downstream industries have grown and are flourishing.

Over the years, a number of tax policy initiatives have been undertaken after long deliberations between beverage manufacturers and the government to resolve issues that were deemed detrimental for maintaining conducive working environment. The policy initiatives included rationalisation of duty structure at various points in time and transition from capacity to supervised production and self-clearance. The revenue analysis indicates that the rationalisation of excise duty rates, whereby the duty on concentrates was reduced in 1997-98 from 100 percent to 50 percent, and on aerated beverages from 17.5 to 15 percent of the retail price, did not yield significant improvement in excise duty collection.

The massive reduction of duty at the concentrate stage and 16.6 percent decrease at the final manufactured stage brought about a mere 5.19 percent increase in revenues. Even worse had been the outcome of duty reduction in 2002-03 when excise duty was slashed from 15 percent to 12 percent with the hope that 'supply side economics' would prevail – sales would increase and additional revenue would be generated for the government. Instead, the reverse happened.

The recorded evidence confirms that excise duty collection had, in fact, declined in each and every month of 2002-03 against the corresponding period previous year. The overall decline in excise duty revenue has been 17 percent, which was significant, considering that the beverage industry is one of five major revenue spinners in the excise regime.

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