FBR deploys vigilance teams to monitor cigarette outputs

KARACHI: Tax authorities have deputed vigilance teams at the factory premises of some cigarette manufacturers to physically monitor their outputs and supplies in an attempt to curb tax evasion, sources said on Saturday. 

“The officials have been posted at the tobacco factories of registered manufacturers after discovery of a huge under-reporting and tax evasion,” a Federal Board of Revenue’s (FBR) senior official said on condition of anonymity.

The official said presently the FBR has posted its officials at three factories, holding 20 percent market share. There are 19 cigarette manufacturers in the country.

The revenue from the tobacco sector declined to Rs90 billion in 2015/16 as against Rs120 billion in the preceding fiscal year.

An official at the Large Taxpayer Unit (LTU) Karachi said the officials were deputed during the last week.

The official said the LTU Karachi invoked Section 40B of the Sales Tax Act, 1990 after detection of non-duty paid cigarettes found during the raids.

The official said the registered companies are giving an impression that the tax losses are due to counterfeit and smuggled cigarettes. 

“But, recent raids have portrayed a completely different picture… entailing most of the losses are due to tax evasion by the registered taxpayers,” the official said.

The official said the revenue body is suffering tax losses due to under-reporting of registered persons and no-reporting by informal sector.

Speakers, at a chief commissioner conference in November 2016, said revenue from cigarette sector is not showing any improvement due to decrease in the production and sales from the formal sector and increase in sales of counterfeit products. 

Consequently, the FBR constituted a joint committee comprising officers of Intelligence and Investigation of Pakistan Customs and Inland Revenue to probe into the matter.

All the Large Taxpayer Units and regional tax offices were asked to conduct raids on illicit production units.

The FBR teams have so far conducted around 40 raids in the country and recovered Rs425 million of the tax-evaded money.

The FBR sources said the government is likely to introduce a mechanism, in the next budget, of tagging and tracking the output in order to prevent further losses. 

The sources said under this system each packet of cigarette will be tagged and therefore tracked for authentication.