Local cigarettes’ manufacturers for reduced tax rates

ISLAMABAD: The local cigarettes manufacturers based in Mardan and Azad Jammu & Kashmir have proposed to the government to introduce a separate second tier for giving them preferential treatment on account of reduced excise duty rates for five years period. They demanded reduced tax rates in the competition of international brands.

A 13- page proposal was given by the local manufacturers to the government for the upcoming budget 2021-22 also understated size of total sticks of cigarettes that they claimed standing at 56 billion sticks so they deliberately grossly misstated the overall size of the market by 30 to 40 per cent.

There is an ongoing debate about the exact size of the illicit/tax-evaded size of tobacco sector because the FBR does have any study to ascertain its exact numbers. However, the FBR high-ups argued that the share of illicit cigarettes stood in the range of 40 per cent. The total size of cigarette industry stands at around 80+ billion sticks. In 2018/19, the volumes with FBR stood at 63 billion of legitimate industry against which taxes were collected. How is the total market estimated to be much lower in the proposal whereas current estimates stand at 50.1 billion sticks in the legal operating sector and about 31 billion sticks in the illicit sector.

Whereas the tax per pack of cigarettes ranges between Rs 42.12 and Rs 130, here the proposal is asking for a preferential excise system of sorts with an exclusive tier for local companies, without increasing minimum legal price over 5 years. Why is there a need for such an incentive for compliance, that too, over a five-year period? What guarantees of compliance and revenue commitments are there? These are relevant questions that require proper replies.

It is proposed that for tier-1, there is 5200 tax per 1,000 cigarettes today and it should be increased to Rs 5,616 in the first year per 1,000 cigarettes, Rs 6,065 per 1000 in the second year, Rs 6,551 in the third year, Rs 7,075 in the fourth year and Rs 7,641 in the fifth year. For second tier, the existing rate of FED stands at Rs 1,650 pre 1,000 cigarettes, Rs 2,178 in the first year, Rs 2,287 in the second year, Rs 2,401 in the third year, Rs 2,521 in the fourth year and Rs 2,647 in the fifth year.