ISLAMABAD: The Federal Board of Revenue (FBR) and members of the National Assembly Special Committee on Agricultural Products were divided over the increase of advance tax on un-manufactured tobacco from existing Rs10 per kg to Rs500 per kg during coming budget (2020-21).

International tax expert Dr Ikramul Haq Tuesday informed a parliamentary panel that the government was suffering potential revenue loss of Rs77 billion per year due to illicit trade of cigarettes, in addition to the decline in revenue, pointing towards strict monitoring of GLT units.

The proposals suggested by of Dr Ikramul Haq were discussed during the National Assembly Sub-Committee of the Special Committee on Agricultural Products meeting headed by convener Shandana Gulzar Khan.

Dr Ikramul Haq recommended before the committee that the excise rate on tier-II of cigarettes was increased by 93 percent in last eight to nine months; however, tier-I increase was over 30 percent.

The legitimate industry increased prices of lower tier (II) brands to Rs78, while the duty-not-paid sector did a very minimal increase to Rs38.

This led to a growing price differential between the duty evading packs and legitimate packs to Rs40.

He informed that the duty-not-paid cigarette sector was now at 37.6 percent as at March 2020, which means that essentially the overall consumption had remained the same but consumers due to affordability challenges were buying cheap duty evading cigarette packets that were selling below the government mandated price of Rs62.76, and even the minimum tax per pack of Rs44. Dr Ikramul Haq estimated possible decline in government revenues by 6.5 percent. From Rs124 billion last year, to Rs116 billion maybe this year, despite massive increases in excise since duty-not-paid sector saw an increase. Government revenue forecast in last year budget speech was Rs147 billion. Forecast was not met, and declined from previous year too. The potential revenue loss of Rs77 billion because of illicit trade every year in addition to the decline.

In addition to excise and taxes, Rs43.9 billion rupees are the annual GDP contribution by international manufacturers.

This Rs43.9 billion and the government revenue are all at risk. If duty-not-paid sector grows then legal industry cannot operate with current manufacturing models and with existing footprint. He stated that the stricter monitoring of GLT units was needed.

He said there were 75,000+ farmers, 500,000+ retailers and 45+ manufacturers but only 11 GLT Units and for manufacturing of cigarettes all tobacco would go through here.

Addressing affordability challenges, increasing enforcement and cracking down on supply chain and their source is pivotal to the sustainability of legitimate industry and government-driven policies, the international tax expert added.

During the meeting, members of a parliamentary panel opposed a proposal to increase tax on tobacco from existing Rs10 per kg to Rs500 per kg.

Malik Ihsan Ullah Tiwana, member of the committee, opposed the proposal and said “imposition of such heavy taxes will overburden the farmers (of tobacco)."

Last year, the proposal to impose Rs300 advance tax per kilogram on tobacco had triggered protests and demonstrations by the farmers and industrial workers.

The farmers have already conveyed their concerns and told the government of the Pakistan Tehreek-e-Insaaf (PTI) that they would not accept any such move.

However, representatives from the Pakistan Tobacco Board informed the committee that entire record regarding tax collection was available with them.

Tobacco farmers and industrial workers have written letter to the National Assembly speaker against the proposal.

The letter explained that manufacturing companies are trying their best that the government enhances advance tax on tobacco, which will annihilate the local industry.

The FBR officials and some committee members were divided over the issue of rate of tax on un-manufactured tobacco. According to the FBR officials, monitoring of cigarettes required at least workforce of 100 persons and FBR has limited capacity in this regard. The FBR has no objection in sharing of data for the purpose of research.

FBR officials admitted that the companies have proposed to raise advance tax from Rs 10 to Rs 500 on the un-manufactured tobacco. Beside strict enforcement within the tobacco sector, FBR said that the deputation of FBR officials at the 10 GLT units would be instrumental in checking the manufacturing and sales of illicit cigarettes.

The committee directed the FBR to provide complete details of tax paid on tobacco during the last five years, actual production of tobacco and cigarette manufactured during this period.

Copyright Business Recorder, 2020