FBR to work with provincial law enforcement agencies over action against tax evaders

ISLAMABAD: The Federal Board of Revenue (FBR) would share powers with the provincial law enforcement agencies, including police, for taking enforcement actions against the illicit tobacco sector. In this regard, the FBR’s rules would be amended for sharing powers with the provinces as the revenue collector currently possesses a workforce of just 100 people.

The minister of state for finance has conceded that the share of illicit tobacco went up in terms of tax-evaded cigarettes and smuggled ones in the range of 70 percent while tax-paying cigarettes’ share shrank to just 30 percent. The government also ruled out the possibility of tax exemption to banks on advance to-deposit ratio (ADR).

The Senate Standing Committee on Finance Chairman, Saleem Mandviwalla, directed the authorities concerned to resolve the issue of Murree Brewery as Punjab’s Excise Department was creating hurdles in export of their alcoholic products. The Senate Standing Committee on Finance and Revenue held its meeting under Senator Mandviwalla here at the Parliament House on Wednesday.

Senator Faisal Vawda also criticised banks and stated that they were not facilitating their customers and the same applied to the State Bank of Pakistan being the regulator of the sector.

FBR Chairman Rashid Mahammad Langrial informed the Senate panel the tax status would remain the same in coming December 2024 as they cannot estimate the expected ADR as on December 31, 2024. The banking companies follow the calendar year as the tax year i.e. from January to December. The current tax year 2025 ends on December 31, 2024. As per half-yearly accounts filed by four banks for January to June 2024, the reported ADR (half-yearly) shows 21 percent to 46 percent for the reported ADR. The chairman stated that the ADR ratio goes up if banks extend more loans to the private sector than investing in government securities.

According to the FBR’s written reply presented before the Senate panel, there is no tax exemption related to ADR. However, the tax rate on the taxable income of a banking company is 39 percent. If the annual ADR of a banking company is more than 50 percent, the tax rate on the taxable income of a banking company is 49 percent instead of 39 percent. If the annual ADR is less than 50 percent, but more than 40 percent, the tax rate on the taxable income of a banking company is 55 percent instead of 39 percent.

Langrial also said that they had moved seven summaries to the prime minister for enforcement, including two summaries for taking action against sales of illicit cigarettes and smuggled products under the FBR’s transformation plan. The FBR will generate Rs200 billion to Rs250 billion through these enforcement efforts. By January 2025, the implementation of new enforcement measures will be done under the FBR’s transformation plan.

In this regard, the FBR will empower provincial authorities to take enforcement action against illicit sales of cigarettes and other smuggled commodities through amendments in the FBR rules.

Under the FBR’s transformation plan, provincial departments would be empowered to take action against sale of illicit cigarettes.

Regarding progress on the track and trace system (TTS), the Senate panel was informed that the track and trace system was fully implemented for the tobacco sector except for illicit manufacturers operating in the Azad Jammu and Kashmir and in some other areas. During the upcoming crushing season of sugar, the TTS system will be 100 percent installed in all sugar mills. In the case of cement, the production lines of all cement units have not been covered under the system. In this regard, meetings are taking place between the FBR and cement manufacturers and hopefully, it will be fully implemented in the coming weeks.