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Govt to impose additional tax on cigarette industry

June 09, 2021

ISLAMABAD: The federal government is reviewing three different tax proposals for the cigarette industry in the upcoming budget as the Ministry of Health has proposed 30 percent increase in tax rates; however, the companies proposed no change and committed to bring the tax amount from Rs134 billion to Rs155 billion.

The FBR has collected tax amount of Rs134 billion during the current fiscal year and the multinational giants proposed no change in taxation rate of two tier system and committed to add Rs21 billion in tax collection amount to touch Rs155 billion figure. If the much-awaited Track and Trace system would be implemented, then the FBR collection may go up to Rs175 billion in the next fiscal year. The local cigarette manufacturers from Mardan and AJK have proposed the government to reduce excise duty on local brands but they did not make any commitment to increase the revenue.

At least, three different proposals have been under consideration by the budget makers; one was given by the Ministry of National Health Services Regulations and Coordination (MoH), recommending a 30 percent increase in excise duty, while projecting Rs18 billion increase in revenue. Through this proposal, the excise duty rates in the second tier, would go up from the existing rate of Rs1,650 per thousand cigarette to Rs2,145 per thousand cigarettes, resulting in a Rs30 to Rs50 increase in prices of duty-paid brands. According to one analyst, to a common man, this may be viewed as an ideal proposition, which seems to be aimed at increasing government’s revenues, and may also reduce the smoking addictions. This measure would lead to further increase in price and the differential amount between the duty paid and non-duty paid brands from existing Rs40 to Rs70 per packet, simply because of increasing in excise rates would not help increase the price of the illicit cigarette brands. In FY 2018-19, the excise duty was increased by 93 percent but the illicit brands continued to sell at the same price of Rs30, which is even lesser than the minimum tax mandated on per pack of the cigarettes.

The second proposal with FBR being pushed by Mardan and AJK based tobacco conglomerates primarily seeking reduction in excise duty through a differentiated excise structure but without any increase of revenue commitments. It is proposed that a separate third tier should also be introduced, solely for the local companies to operate in.