Federal Excise Duty- An overview

In accordance with Section 3 of the Federal Excise Act, specified goods and services are subject to the Federal Excise Duty (FED) at a general rate of 15%. This rate applies to goods and services not specified in the First Schedule. However, specific rates, as outlined in the First Schedule, are applicable to items falling under its purview. Section 16 establishes that FED is levied on goods and services specified in the First Schedule, exempting the rest. Unlike FED, sales tax is applicable to all goods unless explicitly exempted.

Services Exempt from FED

While FED is generally applicable to various goods and services, certain exceptions apply. Services already subject to provincial sales tax are excluded from FED, with a few exceptions including air passenger transport, inland carriage of goods, services provided by port and terminal operators, and chartered flights.

Geographical Considerations

Goods manufactured in non-tariff areas such as Azad Jammu and Kashmir, when brought to tariff areas, become liable for FED. For instance, products like vegetable ghee and cigars/cigarettes manufactured in non-tariff areas are affected by this regulation.

Imported Goods

Irrespective of their ultimate destination within the Territories of Pakistan, imported goods are subjected to FED.

Basis of FED Calculation

FED calculation for goods hinges on various criteria:

• Ad valorem
• Retail price
• Weight or quantity
• Measurement
• Units
• Charges, bill of lading, and premium
• Production capacity, machinery, undertakings establishment or installation
• Fixed basis for specific goods or services

Adjustment of FED

Registered entities can adjust FED on excisable goods used as direct inputs for further manufacturing of goods liable for FED. For this, the entity should possess:

• Proof in the form of purchase invoices, goods declarations, or other lawful documents issued in their name.
• Evidence of payment through authorized banking channels, including online payment, for goods inclusive of FED.
• Confirmation of receiving payment for sold goods inclusive of FED through authorized banking channels, including online payment.

It is important to note that input tax adjustment is exclusively available to manufacturers and solely applicable to goods used directly for the production of excisable goods.

Federal Excise Duty Incentives

Zero-Rate Duty

Goods that are exported from Pakistan or specified by the Federal Government are eligible for zero-rate duty, easing the tax burden for international trade.

Duty Drawback

The Federal Board of Revenue (FBR), under prescribed conditions and rates, may allow the drawback of duty paid on goods used in manufacturing:

• Goods produced in Pakistan and exported outside the country.
• Goods used as provisions or stores on ships or aircraft traveling to destinations outside Pakistan.

FED Adjustment for Zero-Rate Excisable Goods

FED adjustment is accessible for zero-rate excisable goods, further encouraging export-oriented activities. The FBR holds the authority to regulate the payment of duty drawback, refund, or FED adjustment concerning goods exported to specific foreign countries.