ISLAMABAD: The 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.
Pakistan Tobacco Company Senior Regulatory Affairs Manager Noor Aftab told the media on Tuesday that the market share of illicit cigarettes has surged to 33 per cent in 2019 from 23.5 per cent in 2014.
Similarly, the revenue loss has also increased to Rs77.3 billion from Rs50.9 billion last year. The tobacco companies paid Rs123 billion in sales tax in 2018-19.
Noor Aftab said that PTC is giving jobs (directly or indirectly) to 72,000 people and due to the ongoing Covid-19 pandemic, the business of tax-paying companies has been more affected compared to those who are evading taxes, warning that businesses might be closed of the illicit trade exceeds 50 per cent.
He also talked about the PWC as well as Oxford Economics study on the economics of illicit cigarettes in Pakistan.
He revealed that there has been a 93 per cent increase in excise duty during the past 18 months which has widened the price gap between illicit and legal cigarettes. On the other hand, an unprecedented 46 per cent hike in excise rate of lowest tier in the Finance Supplementary (Amendment) Act, 2018, increased the non-duty paid cigarette market share up to 37.6 per cent.
He said that the government needs to implement certain fiscal and administrative actions to combat these issues.
He suggested that the government should avoid levying any additional tax, levy or charge on the cigarette sector as this will provide incentive for further tax evasion and increase in market share of illicit cigarettes.
In addition to this, he said that the government also needs to reduce the duties of cigarettes so that the market presently captured by illicit manufacturers is minimised.
“Federal excise duty on unmanufactured tobacco needs to be increased at least to Rs500 per kg, and the rate of adjustable advance income tax, which currently stands at 5 per cent should also be increased to 10 per cent,” he said.
He also asked the government to reduce the minimum pack price as illicit manufacturers operate at a price range and tax paying companies paid Rs62.76 per pack.
Aftab said that enforcement measures have so far failed to curb the market share of illicit cigarettes. “The government intends to introduce a track and trace system, however, its success is dependent upon implementation and enforcement at retail level,” he added.
He also said that counterfeit cigarette trade has also increased to approximately 2.75 billion sticks per year, in addition to market share of non-duty paid cigarettes. “Total cigarette consumption has remained stable despite excise rate increases. In Tier-1, the rate has increased by more than 30 per cent which has shifted some of the volume to smuggled cigarettes not sporting the statutory health warning. Non-duty paid cigarettes do not conform to regulations governing legal trade,” he added.