KARACHI, April 9: The Central Board of Revenue on Saturday unveiled simple and self-compliant draft proposal of Federal Excise Act 2005 to replace the Central Excises Act 1944, which is not only cumbersome and complex but also demands multiple documentations, thereby incurring high cost for taxpayers as well as tax collectors.

The salient feature of the draft is that its name has been changed from ‘central’ to ‘federal’ to meet the constitutional requirements of the Federation of Pakistan. All care has been taken to reduce the involvement of tax collecting machinery and allow the business to grow on market mechanism without official interference.

Shahid Ahmad, member sales tax, CBR, while unfolding the main features of the new act said that it was long over due to change the sixty-year-old excise law, which was to serve the colonial rulers and based on “do not trust business but extract revenue”.

However, he said the proposed act had been developed on VAT and taxpayers would have to make payments and file returns on monthly basis, which would ensure no intervention from the revenue collectors. This in return will allow the business to operate on market mechanism.

Last year, the CBR member said, the government collected Rs44 billion on account of CED, as against Rs50 billion this year. The major chunk of 40 per cent collection came from cigarette followed by cement 12 per cent, natural gas eight per cent, and beverages eight per cent.

Mr Ahmad said that all over the world excise duty was imposed to regulate consumption of such goods that did not have elasticity in consumption or were considered as ‘injurious’ for health such as cigarette, alcohol, etc., whereas sales tax was meant to have a wide range impact.

While drafting new rules for excise, he said, all care was taken to ensure that the compliance cost was reduced, which would also help reduce cost of doing business in the country. In the CED system, he said, lot of record making was needed at each and every stage and the CED clearance staff was to be located within the premises of factory.

In the introductory seminar on “New central excise act & rules”, organized by the Sales Tax House, Karachi, the CBR member asked the participants from business community and professional bodies to come forward and give their meaningful feedback and suggestions before the draft was finalized.

He said the draft would be sent to the law ministry for wetting and thereafter would be put before the National Assembly for legislation.

The new rules will allow self-clearance like the sales tax system and also require filing of returns on monthly basis. It will also allow the taxpayers to make their payments and file returns electronically so that e-government and e-commerce are promoted. A lot of hard work was done to draft such rules and many countries’ experiences and laws were studied, particularly Asean countries, before it was given the final shape.

“Now you will not have to look into volumes of different laws but only a small booklet will work for filing and payments of excises,” he assured. There will be no more licences or their annual renewal. Above all, he maintained, a person’s registration with sales tax would be sufficient.

Iftikhar Qutub, commissioner audit, while explaining the salient features of the new act said that CED was so complex that it needed up to six entries for a single requirement and there were multiple documentations which did not only consume time but also resources.

He said that as along such commodities which were considered bad for health and those goods having no elasticity in consumption, the excise duty would stay. “There is a lexical change from central excise to federal excise, and definitions have been curtailed from 45 to 21 concepts. Only mega sector are now under CED and have been reduced to 10 items and four services. Under the new law, there will be no physical controls and it will be only self-assessment, self-clearance and self-compliance”, he pointed out.

He said all registers, returns, forms and bonds had been discarded and only simple activity-type records (manual or computerized) in the manner suitable to the business would be maintained. There will be no direct contact with the tax collectors but monitoring through audit.

The payment of duty will be on monthly basis through authorized bank branches on simplified return-cum-challan form, and there will be no advance payment of excise duty and clearances of goods will be against invoices only. For exports, excises will be zero-rated but drawback system will continue in commercial regimes, he added.

The excise warehousing system has been done away with, and no excise payment on inputs prepared and consumed for production of excisable products in the same registered premises will be needed. The new act has also rationalized penal provisions and has been framed mostly on Singapore model. However, excises collectible under the GST mode will continue. Similarly, adjustment of excises collectible under the GST mode with sales tax (and vice versa) will continue.