Federal excise duty (FED) in Pakistan is a levy on a specific list of goods and services (unlike sales tax which is on all goods/services) as specified by the First Schedule of the Federal Excise Act 2005. This is a compliance cost incurred by businesses dealing with cigarettes, aerated beverages, cement, certain vehicles and a few services.
What is Federal Excise Duty (FED)?
FED is a tax on a limited list of goods and services as specified by the First Schedule of the Federal Excise Act 2005. This includes tobacco products, aerated/sugared beverages, cement, vehicles over a certain engine capacity and selected services (franchisee fees, telecom banking charges). The list and rates are subject to change with every Finance Act.
Difference between Sales Tax and FED
While sales tax is a tax on value addition at every level of supply chain (subject to some exemptions), FED is a tax on a select few goods and services at a particular level (manufacture/import) for fiscal or regulatory reasons. Some goods may be subject to both taxes.
FED Rates and Valuation
Rates are specified by the government for different goods (ad valorem or specific) and the FBR revises them periodically through the Finance Act and SROs. Valuation is on retail price basis or ex-factory basis depending upon the goods.
Registration and Filing Requirements
Manufacturers and importers of excisable goods must register with the FBR and file FED returns along with sales tax returns on monthly basis. The amount of FED collected cannot be claimed as input tax credit against sales tax, unlike input tax credit mechanism for sales tax.
Common Errors & Questions
The most common error made by taxpayers is to treat FED as sales tax or vice versa. Also, taxpayers assume that the goods/services mentioned in the First Schedule are always subject to FED, when in fact the schedule is amended every year.
See related article: Sales Tax exemptions
For latest list and rates visit FBR site
