A legal question has been raised about whether Customs officials at airports are justified in collecting Federal Excise Duty (FED) of Rs. 50,000 from Club, Business, and First class outgoing international passengers in cases when tickets were issued before 1 July 2022 and FED became applicable after this date.
There were incidents at the airports involving Federal Board of Revenue (FBR) officers collecting Rs. 50,000 FED when passengers were boarding when tickets had been issued before the implementation of the Finance Act, 2022.
Tickets had been issued before 1 July and FED was collected from this date onward as FED recovery. Obviously, the FED was not applicable before 1 July at the time of the issuance of tickets but become recoverable from passengers from 1 July because the FED rules in this regard clearly detail that “if due to some unavoidable reasons, excise duty is not collected at the time of issuance of tickets, the same shall be charged before boarding of the passenger on the aircraft,” a tax official said.
However, another tax official rejected this viewpoint saying that it is a matter of interpretation. The airlines can collect FED at the time of travel if the ticket is issued without charging FED. Therefore, the FBR’s clarification forms the basis of the collection of the said FED. The rules can be interpreted both ways, he added.
When the tickets were issued prior to 1 July 2022, there was no FED of Rs. 50,000 on tickets. The time of the collection of the FED was before 1 July, which is why there is no legal justification for the recovery of the FED after 1 July, another tax expert said.
Prime Minister Shehbaz Sharif had taken notice of the collection of Rs. 50,000 FED from passengers and directed the Minister of Finance to investigate the matter. He was angered by complaints about the collection of FED from passengers at airports and ordered the immediate suspension of the FED.
The PM also revealed that he was dismayed because passengers were harassed at airports and stated that it should be stopped immediately. He also asked how FED is being collected without the approval of the Cabinet.
The PM’s Office announced that he has also directed the Minister of Finance that refunds should be given to passengers from whom FED has been collected, and wanted the immediate implementation of his orders.
Later on, the Federal Board of Revenue (FBR) issued a legal clarification that the enhanced rate of the Federal Excise Duty (FED) of Rs 50,000 would not be applicable to Club, Business, and First class international air tickets issued before 1 July.
The FBR stated that FED is chargeable on Club, Business First class international air tickets under Section 3 of the Federal Excise Act, 2005. Furthermore, sub-rule(8) of rule 41A stipulates that FED is chargeable at the time of the issuance of air tickets. Thus, the enhanced rate of FED on air tickets under the new Finance Bill 2022 will be chargeable only on international tickets(Club, Business, and First class) issued on and after 1 July.
The FBR further clarified that as federal excise duty is chargeable at the time of issuance of air tickets, the enhanced rate of federal excise duty at Rs.50,000 (previously Rs.10,000) is not applicable on Club, Business, and First class international air tickets that were issued before 1 July.
On the other hand, some FBR officials contested (on the condition of anonymity) that Customs officials are legally empowered to collect such FED as it is collected at the time of departure of flights after 1 July. They claimed that the FBR has issued the clarification after being pressured by the PM Office.
Quoting the Federal Excise Rules, the officials said that according to the Federal Excise Rules, excise duty under these rules will be charged and collected by the airline itself or through its authorized sales or travel agents at the time of the issuance of tickets or at the time of chartering of flights, provided that if, due to some unavoidable reasons excise duty is not collected at the time of issuance of tickets the same shall be charged before boarding of the passenger on the aircraft.
No airline or person-in-charge of the aircraft will allow any passenger to board the aircraft unless such a passenger has paid the excise duty, as per the Federal Excise rules.