Philip Morris Pakistan Limited, a leading cigarette manufacturer in the country, has unveiled a complex web of litigations stretching across numerous years against tax authorities, which have resulted in substantial tax demands.
In its recently released annual report 2023, the company expressed cautious optimism, hoping that the tax cases would ultimately sway in its favor. However, officials from the Federal Board of Revenue (FBR) maintain a staunch position, arguing that the cases were meticulously investigated and are poised to result in tax recovery.
The litigations, as detailed in Philip Morris Pakistan’s annual report, primarily revolve around income tax-related contingencies and sales tax and Federal Excise Duty (FED) related issues:
Income Tax Related Contingencies:
1. Tax Year 2009: The Deputy Commissioner Inland Revenue (DCIR) disallowed certain deductions amounting to Rs 256.444 million, with an incremental tax impact of Rs 100.525 million. Despite rectification and appeal orders, aggregate disallowances of Rs 48.405 million remain pending before the DCIR for further consideration.
2. Tax Year 2011: Similar disallowances of deductions totaling Rs 235.705 million, with an incremental tax impact of Rs 100.927 million, await further deliberation after rectification and appeal orders, amounting to Rs 105.280 million.
3. Tax Year 2013: The Additional Commissioner Inland Revenue (ADCIR) disallowed deductions aggregating Rs 455.747 million, with an incremental tax impact of Rs 77.829 million. Although appeals were made before the CIR – Appeals, only a portion of the disallowances, amounting to Rs 210.620 million, were deleted, leaving Rs 95.685 million for further consideration.
4. Tax Year 2014: The DCIR’s disallowance of deductions totaling Rs 131.086 million, with an incremental tax impact of Rs 39.326 million, resulted in varied outcomes after appeal processes. While some disallowances were deleted, others were remanded back to the DCIR for further review.
The management of Philip Morris Pakistan remains confident, relying on the advice of tax consultants, that these matters will eventually tilt in favor of the company, thus no provisions have been made in the financial statements.
Sales Tax and FED Related Contingencies:
1. 2003 and 2014: Orders issued by tax authorities related to short payment of Central Excise Duty and Sales Tax, resulting in additional duties and penalties, have been contested by the company. Appeals against these orders are pending adjudication.
2. 2017: Allegations of evasion of Federal Excise Duty and sales tax, totaling Rs 1,765.008 million, along with penalties, were contested by Philip Morris Pakistan. Although the Appellate Tribunal set aside the demand in favor of the company, it directed the FBR to re-initiate proceedings, which are ongoing.
3. 2023: An order issued by the Khyber Pakhtunkhwa Revenue Authority demanded Rs 600 million for alleged short withholding of sales tax on services. The company has filed an appeal and obtained a stay order against recovery.
Despite the setbacks, the management maintains a positive outlook, believing that the matters will be resolved in favor of Philip Morris Pakistan.
The intricacies of these legal battles underscore the challenges faced by multinational corporations operating in Pakistan’s regulatory landscape. As these litigations continue to unfold, they highlight the importance of robust legal strategies and the expertise of tax consultants in navigating complex tax frameworks. The outcome of these cases will undoubtedly have significant implications for both Philip Morris Pakistan and the broader business community in the country.
