In anticipation of the upcoming federal budget, foreign investors operating in Pakistan, through the Overseas Investors Chambers of Commerce and Industry (OICCI), have submitted specific proposals pertaining to the tobacco industry to the Federal Board of Revenue (FBR).
One of the key recommendations put forth by the OICCI is to impose stricter penalties for selling cigarettes below the minimum legal prices (MLP). Currently, the penalty stands at Rs20,000, but the chamber suggests increasing it to Rs50,000. Furthermore, they propose extending the jurisdiction of the police to take cognizance of this offense, simplifying enforcement procedures, and designating selling cigarettes below MLP as a non-bailable offense. These measures aim to enhance the effectiveness of the law and combat tax evasion.
The rationale behind these proposals, as explained by the OICCI, is that raising the penalty for selling cigarettes below the minimum legal retail price will act as a deterrent against tax evasion while bolstering enforcement efforts.
Additionally, the OICCI recommends an increased levy on unmanufactured tobacco, suggesting a raise from the current Rs390 per kilogram to Rs500 per kilogram. According to the OICCI, this higher adjustable levy on unmanufactured tobacco will heighten the cost of doing business for tax-evading brands. It is important to note that this adjustment will not adversely affect the farmers engaged in tobacco procurement but rather the companies involved in the process.
Turning to the federal excise duty (FED) on leaf processing, the OICCI acknowledges the positive impact of the increase from Rs10 per kilogram to Rs390 per kilogram on raw tobacco processing. However, they emphasize that the implementation of this measure has been incomplete. Consequently, the OICCI proposes not only maintaining the measure but also ensuring its true implementation at the Green Leaf Threshing (GLTs) stage.
The OICCI said illicit cigarette trade in Pakistan causes an annual loss in excess of Rs80 billion to the national exchequer. The primary cause of the increase in illicit cigarette trade is the excise-driven price gap between tax-paid and tax-evaded cigarettes.
It is proposed to not increase excise duty on cigarettes before sufficient measures are taken to control illicit cigarette trade. This shall help provide a level playing field for the legitimate players and thus increase cigarette excise revenue.