ISLAMABAD: A multinational tobacco company has urged the government to reduce Federal Excise Duty (FED) by 30 per cent.
It believes that this reduction will increase tax revenue to Rs360 billion in the upcoming fiscal year, compared to the current projection of Rs243 billion.
Additionally, the FBR has failed to implement the requirement for licencing brand names in accordance with the sales tax law.
The Finance Act of the fiscal year 2021-22 introduced Section 40-E for this purpose. Only two multinational giants, namely Pakistan Tobacco Company and Philip Morris, have obtained licences for brands, while other companies have not complied with the law. It is ironic that the FBR has taken no action against those who have violated the law.
None of the locally manufactured tobacco brands has taken the necessary steps to secure licencing for their various brands. Similarly, the much-hyped Track and Trace System has only been implemented by the two multinational giants, costing them Rs3 to Rs4 billion annually.
"The tobacco industry is facing significant challenges due to the rampant smuggling of brands and illicit cigarettes. The share of illicit cigarettes, including locally manufactured tax-evaded and smuggled cigarettes, is projected to increase from 40.7 billion sticks to 53.4 billion sticks in the next fiscal year.
"In the meantime, the share of the legitimate industry will decrease from 42.3 billion sticks in 2022–23 to 29.6 billion sticks in the fiscal year 2023–24," stated representatives of the Pakistan Tobacco Company (PTC) during a discussion with a select group of reporters on Monday.
The PTC representatives propose that the government reduce FED from Rs16,500 to Rs11,550 per 1,000 sticks for tier-1 cigarettes and from Rs5,050 to Rs4,000 per 1,000 sticks for tier-II cigarettes in the finalisation of the budget for 2023-24.
They said that although there has been a 50 per cent decline in tax payments from the tobacco sector, there has been no decline in consumption. They believe that the FBR will face a shortfall in achieving its tax collection target from the tobacco sector.
The FBR had set a target of Rs240 billion in tax collection from the tobacco sector after increasing the FED by 200 per cent in the previous year.
However, with the estimated collection of Rs175 billion, there will be a significant shortfall of Rs85 billion in tax revenue from this major sector alone in the outgoing fiscal year.
Out of the expected Rs175 billion in tax revenue collection, it is anticipated that the PTC will contribute Rs145 billion, PMI Rs27 billion, and all other locally manufactured cigarettes Rs3 billion.
According to a recent IPSOS survey quoted by the PTC representatives, the cigarette market in Pakistan is plagued by duty evasion and smuggling. The survey found that over 50 locally manufactured and tax-evaded brands held a market share of 38 per cent. Additionally, more than 51 smuggled brands were being sold in the market without health warnings, comprising 10 per cent of the market share. Overall, illicit cigarettes account for 48 per cent of the Pakistani market, resulting in losses amounting to billions of rupees. The survey also revealed that 26 brands displayed track and trace stamps, while 126 brands were sold without any track and trace stamps.
Furthermore, over two-thirds of cigarette brands are being sold below the government's minimum legal price, indicating a failure on the part of relevant authorities. Approximately 61 per cent of brands available on the market are being sold below the minimum legal price. The FBR has not increased the minimum legal price despite the 154 per cent hike in the FED during the last mini-budget in February 2023, creating a problematic situation that needs to be addressed in the finalisation of the budget for 2023-24 this week.
