Tag: tobacco

KARACHI: Tax experts believed that newly imposed federal advance excise duty (FED) on tobacco purchase will not impact farmers but manufacturers and would dent the massive tax theft in the tobacco sector.

They said that tax evaders are pressurizing the FBR through farmers for withdrawal of this major documentation measure and creating a false impression of farmers being taxed.

Recently, Khyber Pakhtunkhwa Farmers Rights Protection Association (KPFRPA) has opposed the advance excise duty and wrongly associated it with farmers.

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Spokesperson of FBR clarifies that, “FED on un-manufactured Tobacco has been enhanced from Rs 10/per kg to Rs 390/per kg w.ef 23.08.2022, through promulgation of Tax Laws (Second Amendment) Ordinance,2022, in terms of S.No 7 of Table 1 of First Schedule to the Federal Excise Act 2005.”

He added that the FED is chargeable on unmanufactured Tobacco for manufacturers of cigarettes by the Green LEAF Threshing Units (GLT Units) after processing and conversion of tobacco green leaf as defined under sub-section (2A) of section 2 of the Federal Excise Act 2005.

He said that the amount of FED is adjustable in terms of section 6 of the Federal Excise Act 2005, from the amount of duty collected. Therefore, the main purpose of imposition of FED on unmanufactured tobacco is the documentation dormant undocumented segments of Tobacco industry.

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Furthermore, he added that no FED is imposed or chargeable on raw tobacco leaf supplied by the tobacco growers/farmers to the GLT Units.

Experts believe that the imposition of advance excise duty has been instrumental in documentation of the purchase of tobacco by manufacturers of cigarettes and other tobacco products as all manufacturers who purchase tobacco from farmers must process tobacco through GLT plants.

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It is pertinent to mention that the previous government had increased the tax on tobacco from Rs. 10 per kg to Rs. 300 per kg, however, it had to retract the decision due to pressure from lobby sitting in power corridors, related to illegal cigarette producers.

The government must take a strong stand on this decision. Otherwise, it may help the rise in illicit trade as it will once again give these illegal manufacturers the opportunity to hide their actual tobacco purchases and channel the unlawfully gained revenues from this evasion into marketing and fiscal violations.

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Experts believe that unchecked tobacco processing in green leaf threshing (GLT) plants is the root cause of massive tax evasion in tobacco sector.

“At times when Pakistan is struggling to increase revenue, Government’s indifference towards tax evasion is incomprehensible,” according to an expert.

Tobacco industry is one of the five industries which cause a loss of more than Rs310 billion annually to the national exchequer through tax evasion and illegal trade, yet the authorities are not serious enough to take stringent actions against tax theft.

“The market share of illegal tax-evading tobacco companies has reached 40 per cent causing a loss of Rs80 billion annually and strict enforcement of national laws is needed to prevent damage to the national treasury from the illicit sale of cigarettes,” the expert added.

Supervising the entire supply chain of the cigarette industry is a difficult task in which there is a possibility of corruption due to human intervention. This difficulty can be alleviated by monitoring the green leaf threshing phase of tobacco.

The Federal Board of Revenue (FBR) provides legal authority for monitoring of green leaf threshing plants under SRO 1149 (I) 2018. However, over the last four years, this SRO has not yet been fully implemented to eliminate tax evasion from the cigarette industry.

A report by the Federal Tax Ombudsman (FTO) pointed out that there is a significant difference between the tax record and the Pakistan Tobacco Board’s statistics.

According to the FTO, the inspection by the Commissioner Inland Revenue, Regional Tax Office, Peshawar, proved that lack of effective monitoring of GLT plants caused a loss of Rs40 billion in taxes to the national exchequer during 2017-18 and 2018-2019.

The FTO has recommended the FBR to implement real-time and verifiable issuance of invoices, blocking all types of post-seizure verifications or data fudging / forgery. The FTO has also recommended the FBR to immediate implementation of Rule 89 especially sub-rules (2) and (3) read SRO 1149 (1) dated 18th September 2018.

According to the experts, the lack of supervision of threshing plants is the basis of tax evasion of billions of rupees annually by the cigarette industry in Pakistan. The non-implementation of SRO 1149 (I) 2018 despite the lapse of four years is serious negligence.

The experts advised that supervising 10 green leaf threshing plants is easier than monitoring over 60 cigarette factories and more than 2 million retailers in Pakistan.

The experts said that authorities should take a more systematic approach during 2022 with regards to track and trace system, to ensure tax evasion is converted into tax paid.