FBR facing Rs12.5bn losses for failing to collect WHT from tobacco industry

ISLAMABAD: The Federal Board of Revenue (FBR) is facing losses of Rs 12.5 billion in tax revenues owing to the inability of the tax machinery to collect Rs 390 per kilogram Advance Withholding Tax at the stage of Green Leaf Threshing (GLT) processing of tobacco leaf.

There are a few dozen GLT processing units and the FBR could ensure documentation of the whole sector through effective monitoring of just two months (August and September 2023) thus could plug cumulative tax leakages of up to Rs 176 billion in totality in the current fiscal year.

Detailed background interviews conducted by The News revealed on Friday that the total estimated production of tobacco leaf crop stood at approximately 64mn kg to 72mn kg for the current season. Out of this yield, the two giant multinational companies Pakistan Tobacco Company (PTC) and Philip Morris (PMI) were expected to procure around 40 mn kg while the remaining 32 m kg was estimated to be used by illicit cigarettes manufacturers (tax evaded) sector cum exporters.

Owing to lesser production in the current season, the prices of tobacco leaf has doubled and stood at around Rs 800 per kg. The formal sector has expressed its fears that the rising price trend of unprocessed tobacco leaves was making it unviable to export crops in the current season when the prices of tobacco of the same quality were available from Bangladesh and other regional markets at much lesser prices. One official of a giant company when contacted said that the tobacco leaves exported to Dubai and regional destinations were allegedly being smuggled back into the county, causing doubled edged losses to the formal sector. On one hand, the illicit manufacturers were evading taxes and openly selling their products for less than the due tax amount, while on the other the cigarette packs that are smuggled back do not have any Track and Trace stamp at all, rapidly shrinking the tax-paying cigarettes market.

“The illicit manufacturers were estimated to procure around 32 million kg but they would not pay the WHT tax causing losses to the national exchequer to the tune of Rs 12.5 billion till the end of the first quarter (July-Sept) of the current fiscal year, they said.

But this loss at the initial stage of GLT processing would further multiply when the tobacco leaf is used for manufacturing billions of sticks of cigarettes. In totality, the FBR’s losses would escalate up to Rs 176 billion for the whole financial year 2023-24.