Islamabad, July 25, 2023 – Illicit cigarette manufacturers in Pakistan are exploiting the exports quota to evade advance tax, resulting in substantial losses to the national exchequer.
Industry sources have revealed that these companies are not only evading taxes at the retail level but are also misusing the export category to avoid paying their fair share of advance tax on tobacco processing.
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The illegal cigarette manufacturers are engaged in a deceptive practice where they declare that they are buying processed tobacco from green leaf threshing units for export purposes. However, instead of exporting the purchased tobacco, they are clandestinely selling it in the local market, evading the advance tax that should be collected on such transactions.
The government had imposed an advance tax of Rs 390 per kilogram on the purchase of tobacco from green leaf threshing units to monitor the production and sale of illegal cigarettes and bring them into the tax net. This tax is adjustable, meaning it does not burden the tobacco farmers, as it is collected from the manufacturers and can be adjusted accordingly.
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According to data from the Pakistan Tobacco Board for the financial year 2021-22, a total of 52 cigarette manufacturers purchased 22.3 million kilograms of tobacco worth 65.2 million US dollars. The organized industry, comprising the top three tax-paying companies, bought around 12.39 million kilograms of tobacco worth 53.4 million dollars, while the other 49 manufacturers purchased 10 million kilograms of tobacco worth 11.8 million dollars.
Estimates suggest that more than 90% of the tobacco purchased by these 49 manufacturers was sold in the form of cigarettes in the local market without paying the required taxes, resulting in an alarming loss of approximately 4 billion rupees to the national exchequer in advance tax alone.
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Intriguingly, the State Bank of Pakistan’s tobacco export statistics reveal a significant discrepancy. According to their data, during the same financial year 2021-22, the export of tobacco and alternative tobacco products amounted to only 56.9 million dollars, while the Pakistan Tobacco Board reported that 22.3 million kilograms of tobacco worth 65.2 million dollars were bought for export during the same period.
The glaring difference between these two sets of statistics indicates that a substantial portion of the tobacco purchased from green leaf threshing units is not genuinely intended for export but is being diverted to the local market, further exacerbating the tax evasion issue.
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As a result of this double tax evasion, the national exchequer is losing an estimated 80 billion rupees annually. This large sum of money, if properly collected through taxes, could significantly help Pakistan control its budget deficit and allocate funds to provide relief to the citizens facing inflation while also improving infrastructure to expedite social development.
Experts emphasize the urgent need to address this issue promptly. By curbing tax evasion by illicit cigarette manufacturers, Pakistan can strengthen its fiscal position and allocate these crucial funds to benefit its citizens and propel the nation’s progress. The government and relevant authorities must take stringent actions to curb the illegal cigarette trade, enforce tax compliance, and protect the interests of the national economy.
