Illegal tobacco manufacturers succeed to further dent govt revenues

Islamabad : Recently legal cigarette manufacturing industry has recommended an increase in the advance adjustable FED on un-manufactured tobacco at GLT stage in the coming budget to up to Rs500/kg and rate of adjustable advance income tax, currently 5%, should be increased to 10%.

These suggestions were made to document the tobacco sector and would have led to an increase in revenue collection for the national exchequer. However, Federal Board of Revenue (FBR) informed the Special Committee of the National Assembly on Agricultural Products that advance Federal Excise Duty (FED) on tobacco leaf will remain intact for the fiscal year 2020-21 at Rs10 per kg.

Currently, Federal Board of Revenue (FBR) is expected to lose Rs77.3 billion during the ongoing fiscal year owing to increasing volume of illicit cigarette trade as the market share of illicit cigarettes has surged to 37 per cent in March 2020 from 33 per cent in 2018-19.

In 2018, the PTI Government decided to increase this tax to Rs300/kg in the mini budget so as to further increase the cost of tax evasion for the illicit manufacturers. This came as a hit to the illicit manufacturers who decided to use the power corridors of national and provincial assemblies to drive their campaign. National Assembly Speaker Asad Qaiser was chosen to spearhead this campaign, who made a committee that included senators, senior federal and provincial ministers, ironically, some members like Senator Dilawar Khan, Shahram Khan Tarakai, Atif Khan belonged to the tobacco business and were owners of illicit cigarette manufacturing units and were the very same people getting affected by this law. They managed to succeed in this campaign and in the 2019 budget; this tax reverted to Rs10 per kg.

In the current budget, the legal industry recommended increasing this tax to Rs500/kg to help the government document the tobacco sector but once again Speaker National assembly Asad Qaiser intervened and took a notice of increasing tobacco related advance FED and summoned relevant stakeholders in the meeting of special committee on agriculture. Federal Board of Revenue (FBR) informed the Special Committee of the National Assembly on Agricultural Products that advance Federal Excise Duty (FED) on tobacco leaf will remain intact for the fiscal year 2020-21 at Rs10.

While discussing the speech of Senator Saif in the senate regarding tobacco, experts said that hitting the legal industry and not commenting on the illicit cigarettes shows that there is bigger hand at play in the hind sight. Experts urged that government machinery should be more focused on better policies rather supporting different mafias in key industries.

While commenting on the matter, general secretary for the farmer’s association in Buner Anwar Khan, said that policy makers are being misled on tax issues. He said that the advance FED has to be paid by the cigarette manufacturers and this is beyond understanding how some of the growers are claiming that the advance FED will impact us negatively.

The total cigarette market in Pakistan is around Rs80-85 billion sticks and there are two sectors—one what they call “legitimate tax paying sector” with 63% market share and a contribution of 98% in revenues, while the other is the “tax-evading sector” with 37% market share and a contribution of only 2% in FBR’s revenues. It is a well-established and internationally recognised fact that illicit trade in tobacco products and counterfeiting not only reduces turnover and profit for honest businesses and local producers, they also cause a loss to the national exchequer.