Illicit cigarette trade incurs Rs24b loss to state kitty annually

ISLAMABAD: The Federal Board of Revenue (FBR) admits that the illicit cigarette trade deals an estimated loss of Rs24 billion per annum to the national exchequer.

“Our estimate suggests that the share of illicit cigarettes stands in the range of 16 to 18 percent causing Rs24 billion losses to our revenues,” Member Tax Policy FBR Chaudhry Muhammad Tarique said in a policy dialogue on tobacco taxation.

The dialogue was organized by the Society for Protection of Rights of the Child (SPARC) in collaboration with other partners at Murree his weekend.

Tobacco industry giants and biggest players are presenting a study showing that the share of illicit cigarettes stood at 40 percent so total revenue losses were ranging Rs40 billion per annum.

Tarique said they were facing three inherent dilemmas with regard to tobacco taxation.

“First of all, it is a legitimate industry but it’s harmful to the extent that it’s a killing industry. There is a need to think more about how to get rid of this harmful industry,” he said.

The Second dilemma, he said, was that tax revenues declined with increase in tax rates.

“The tax rates were raised to suppress consumption.

It’s a dilemma that what would be the optimum tax rates so that revenues could be protected, but it also discourages consumption.”

The third dilemma, he said, was that when tax rates were increased, the informal sector came in and the share of illicit cigarettes started to witness an increase in the market.

Tariq Hussain Sheikh, Chief Sales Tax and Project Director Track & Trace system, said tobacco was a Rs300 billion industry.

“We are estimating that Rs24 billion is not coming into the national kitty because of illicit cigarettes share,” he stated.

The Pakistan Tobacco Board, he said, had estimated that total production of tobacco stood at 103 million kilograms out of which 63 million was utilized for cigarettes raising a question where the remaining 43 million kg had gone.