FBR faces loss of Rs40b for poor monitoring of GLT mechanism

ISLAMABAD: The Federal Board of Revenue (FBR) is facing a mammoth revenue loss of Rs40 billion mainly because of poor monitoring mechanism placed for the Green Leaf Threshing (GLT) units, a process that is necessary for manufacturing tobacco being used by the cigarette industry.

The Federal Tax Ombudsman (FTO) has issued an inspection report for the inspection of the office of commissioner Inland Revenue, Regional Tax Office Peshawar holding jurisdiction over monitoring of green leaf threshing plants (GLTP).

In an Own Motion Notice case, the Federal Tax Ombudsman has sought the FBR to immediately monitor the implementation of rule 89(2)(3) SRO 1149(1)18. It was noted by the Federal Tax Ombudsman that the check inserted in regulatory regime of tobacco/cigarette in September, 2018 has yet not been implemented.

The Federal Tax Ombudsman observed that the loss of revenue from the cigarette sector can be plugged through strict implementation of the procedure to seek Green Leaf Threshing (GLT) sector’s tax invoice bearing unique and distinguishable serial numbers through the FBR portal and on real time basis. An Own Motion case was taken by the Federal Tax Ombudsman on a newspaper article “Illicit Cigarette Trade”, published in the national print media.

During the preliminary analysis, the Federal Tax Ombudsman observed alarming gaps between the tax potential and tax revenue contributed by tobacco/cigarette sector in Pakistan. The analysis also identified improper monitoring of the first and the foremost process in this sector i.e. Green Leaf Threshing (GLT), the jugular vein in tobacco/cigarette sector, causing massive loss to the state exchequer.

It was observed that as per the FBR’s own findings, there was an alarming gap between tobacco produced (as per data maintained by the Pakistan Tobacco Board) and tobacco used in declared cigarettes manufacturing. As per the tax record, the comparative analysis of both reflected that in 2017-18, tobacco produced was 106.780 million kg, while that was shown as used as per the manufacturing record was 44.20 million kgs. Similarly in 2018-19, out of the 111.63 million kgs tobacco produced, 63.63 million kgs was shown as used by the manufacturers. In both the years, the manufacturers paid a total of Rs87 billion and Rs113 billion respectively. After deductions of tobacco used for export, still there was as estimated loss of Rs40 billion to the exchequer.

The preliminary findings had indicated that lopsided and ineffective monitoring of the GLTs on account of neglect, inattention, incompetence and inefficiency of the FBR’s field force is the root cause of this maladministration. Therefore, the Federal Tax Ombudsman constituted an inspection team in the subject. The inspection report pointed out irregularities in compliance with the procedures and cosmetic and artificial applications of laws procedures and rules by the FBR administration.

GLT is an important stage in the post-harvest processing of tobacco, which starts after the purchase of tobacco from the farmers. It includes blending, tipping, conditioning, classification and re-drying and packing for final consumption i.e. cigarette manufacturing. Pakistan has around 10/11 GLT plants and all the cigarette tobacco produced in the country ends up at one or the other GLT plants. Bulk of loss in the cigarette sector can be plugged if the GLT sector is fully monitored. The FED law and procedure, provide the mechanism for monitoring. But it is not being implemented by the tax administration so far.