FBR proposed to raise FED on cigarettes

KARACHI: A tax department proposed the government to increase federal excise duty (FED) on cigarettes to Rs5/filter rod from the present Re0.75 in order to discourage smoking and sale of counterfeit brands, officials said on Tuesday.

Large Taxpayers Unit (LTU) Karachi, the biggest revenue arm of the Federal Board of Revenue (FBR), advised the FBR to abolish the third-tier of FED on cigarettes as it promoted the sale of cigarettes without positive impact on the revenue.

The tier for cigarettes was introduced through Finance Act 2017, which resulted in reducing the amount of FED/1,000 sticks.

“The impact of change in the law resulted in increase in sale of cigarettes to almost double, whereas the FED recovered on the cigarettes from this tier is approximately the same,” a FBR official said.

The collection of FED on cigarettes sales fell 2.22 percent to Rs7.5 billion during the first nine months of the current fiscal year. FED collection amounted to Rs7.6 billion in the corresponding months of the last fiscal year.

The official said the LTU, in its budget proposals for the next fiscal year of 2018/19, said the existing tier should be deleted or the rates should be rationalised to boost revenue, as well as implement the directives of the World Health Organization and the ministry of health.

The cigarettes industry, however, advocated for the continuation of third tier taxation and suggested the government to step up enforcement measure against illicit cigarette trade, which remains a pervasive problem to hurt tax revenues and health objectives. The revenue collection from the cigarette varied during the past few years. The collection of the FBR from tobacco industry before introduction of third tier was Rs88.4 billion in fiscal year of 2013/14; Rs102.88 billion in 2014/15; Rs114.19 billion in 2015/16; and Rs83.69 billion in 2016/17.