Tobacco industry offers Rs120b tax in fiscal year 2018-19

ISLAMABAD: Tobacco industry has estimated that its tax contribution could cross $1 billion mark or Rs120 billion in the upcoming fiscal year 2018-19 provided the FBR stuck to the existing third tier taxation system and continued enforcement against illicit cigarettes with full force.

“Our contribution into taxes can go up to Rs120 billion and can enter into club of paying over $1 billion mark next budget against Rs90-92 billion projected collection for outgoing fiscal year. The market share of illicit cigarettes stands at 35 percent and by reducing 10 percent, the tax collection can easily go up by Rs 10 billion. We propose to the government to continue with existing three tier taxation system and persistent efforts against illicit cigarettes in big way,” the board members of Pakistan Tobacco Company (PTC) told a select group of journalists after holding annual general meeting (AGM) here on Friday. The PTC Board is comprised of renowned former bureaucrats and others belonging to banking and other prestigious institutions of the country.

After taking stern actions by the FBR on enforcement front, the illicit tobacco industry shifted their business from KP to Azad Jammu and Kashmir (AJK) and according to the estimates done by PTC that the AJK government could generate tax revenues to the tune of Rs7 billion by bringing them into tax net.

The board members of PTC asked the FBR to jack up existing 5 percent withholding tax on tobacco to 10 to 15 percent and argued that it was not tax imposed on tobacco growers. “We are willing to pay this adjustable withholding tax because it discourages informal and illegitimate sector,” they added.

They said the tobacco industry was comprised of 80 billion sticks and its declining industry in the range of 0.2 to 0.4 percent on per annum basis. The market share of illicit trade has dropped from 45 percent to 35 percent with introduction of third tier taxation system and enforcement steps taken by the FBR. With introduction of third tier slab, they said that shift occurred from usage of illicit cigarette to legal brands because price differential was narrowed down by reducing taxes on third tier in last fiscal year.

They explained that the share of 35 percent illicit cigarette could be termed as size of Rs 35 billion cost for the national exchequer and mainly influential were part and parcel of this mafia.

Despite introduction of third tier taxation, the price of branded cigarette stands at Rs48 per packet while price of illicit tobacco packet is Rs 24 on average but the price differential should not be increased in such a way that caused closing down of formal sector.

They said that the tobacco industry had contributed Rs111 billion in fiscal 2015-16 but with increase in tax rates the collection nosedived to Rs74 billion in 2016-17. In the mid of 2017-18, the FBR introduced third tier taxation system and it is now hoped that the tax collection will go up by Rs20 billion and can touch Rs92 billion by end June 2018.

“There is no need to change this fiscal policy for next three years,” they said and added that it is declining industry as PTC profit decreased by Rs 1 billion.