Does federal excise duty apply to anything a textile mill makes or buys?

Federal excise duty is a narrow tax in Pakistan. It is charged only on the goods and services named in the First Schedule of the Federal Excise Act, 2005, and textiles are not among them. A mill’s own yarn, grey cloth, processed fabric and garments carry no excise duty. The duty can still reach the mill through what it imports or buys.

What does the law say?

The charging section. Section 3(1) levies duty on goods produced or manufactured in Pakistan, goods imported, notified goods from non-tariff areas, services provided in Pakistan, and any other item specified in the First Schedule. It sets a general rate of fifteen per cent ad valorem “except the goods and services specified in the First Schedule, which shall be charged to Federal excise duty as, and at the rates, set-forth therein”.

The exemption that narrows it. Section 16(1) then says all goods and services “except such goods and services as are specified in the First Schedule shall be exempt from whole of excise duties” levied under section 3. Read together, only First Schedule items bear duty.

Who is liable. Section 3(5) places liability on the manufacturer or producer for goods made in Pakistan, on the importer for imported goods, and on the service provider for services. Where a service is rendered from outside Pakistan, the recipient in Pakistan is liable.

What is in the First Schedule (30 June 2026).

Table	Main entries
Table-I (goods)	Aerated waters and concentrates, sugary juices, tobacco and cigarettes, cement, liquefied and gaseous petroleum gases and natural gas, certain motor vehicles, fertilizers, lubricating oils, naphtha, white spirit and solvent oil, day old chicks
Table-IA	Special excise duty on imported motor vehicles of 2000cc and above (inserted by Finance Act, 2026)
Table-II (services)	Advertisements, air travel and air cargo, shipping agents, telecommunication, banking and insurance services, franchise services, royalty and fee for technical services, stock brokers, port and terminal operators, chartered flights
Table-III	Supply of white crystalline sugar to a manufacturing, processing or packaging entity

No table in the First Schedule has an entry for textiles, yarn, fabric, cotton or garments.

How does it work in practice?

A mill meets excise duty in two ways:

1. As the person liable. When the mill itself imports a First Schedule item, section 3(5)(b) makes it liable, and section 3(2) says the duty on imports is collected as if it were customs duty. The same applies to services received from abroad, such as franchise, royalty or technical fees paid to a foreign party.
2. As a buyer. When a mill buys natural gas, bank services or insurance locally, the supplier is liable under section 3(5). The Act does not say whether the supplier passes the duty on in its price; that is a commercial matter.

No excise registration is usually needed. Section 13(1) requires registration only for persons making or providing dutiable goods or services. Under section 13(2), a sales tax registration is deemed to be an excise registration where one is needed.

Adjustment is limited. Section 6(1) lets duty paid on First Schedule inputs be deducted from duty calculated on the goods made from them. A mill whose output carries no duty has nothing to deduct it from.

Worked example (illustrative figures)

A composite mill in Faisalabad has these purchases in one month:

1. Imports lubricating oil (Table-I, serial 63, five percent ad valorem) valued at Rs. 2,000,000. Duty: 5% x Rs. 2,000,000 = Rs. 100,000, payable by the mill as importer.
2. Pays a foreign brand owner a technical fee of Rs. 5,000,000 for a licensed fabric finish. Table-II, serial 11 sets ten per cent of the charges: 10% x Rs. 5,000,000 = Rs. 500,000, with the mill liable as recipient of a service rendered from outside Pakistan. The Note to Table-II says duty on serial 11 is not levied on services provided in a Province where provincial sales tax has been levied on them, so this depends on the provincial position.
3. Uses 10,000 MMBTU of natural gas. Table-I, serial 36 sets ten rupees per MMBTU: 10,000 x Rs. 10 = Rs. 100,000, for which the gas producer is liable.
4. Sells Rs. 80,000,000 of fabric. Excise duty on the fabric: nil, because fabric is not in the First Schedule.

What if …?

What if the mill exports and insures the shipment? Table-II of the Third Schedule exempts marine insurance for export.

What if the mill buys electricity? Electricity has no entry in Table-I of the First Schedule, so section 16(1) exempts it from excise duty. Sales tax and income tax collected through electricity bills are separate matters.

What if the mill buys white spirit or solvent oil for processing? Serial 65 of Table-I charges Rs. 80 per litre, with a conditional exclusion for in-house consumption by licence holders under quota and digital invoicing conditions.

Common mistakes

• Reading section 3 alone. The fifteen per cent general rate in section 3(1) is overridden in practice by the section 16(1) exemption for anything outside the First Schedule.
• Assuming the provincial services tax and excise duty always both apply. The Note to Table-II takes several services out of excise duty where a Province levies sales tax on them.
• Taking a separate excise registration. Section 13(2) treats a sales tax registration as an excise registration.

What to check in the official text

Read sections 3, 6, 13 and 16 of the Federal Excise Act, 2005, the First Schedule and the Third Schedule. Federal Government notifications under section 16(2) and Board notifications under section 3(3) or (4) can change the position for particular goods and are not held in this corpus. Provincial sales tax on services is outside this corpus.