PTC contributes more than Rs 17 billion in government taxes in Q1

ISLAMABAD: Pakistan Tobacco Company (PTC) has announced its quarterly results for the first quarter ending March 31, 2014.

According to the financial results released, the company contributed more than Rs. 17 billion in Government revenues on account of excise duty, sales tax and income tax, which depicts a 21% increase over the same period last year.

"This impressive growth in tax contribution even surpassed company's net turnover growth. The company also declared a profit of merely Rs. 1.243 billion and an earnings per share of Rs. 4.87", says a statement issued by the Company here on Tuesday.

The Tobacco industry is a big revenue spinner and contributed more than Rs. 76 billion in 2012-2013.

The PTC alone contributed more than Rs. 60 billion in 2013 in government levies.

According to tax experts, the revenue contribution from the sector is expected to exceed Rs. 85 billion this year.

The high revenues are attributed to high tax incidence in the sector. At present prevailing excise and sales tax structure imposes an overall tax of 71 to 81 percent on pack price, in addition to customs duties on imports as well as any income tax payable by the company.

It is noteworthy that more than 99% of the government revenue contribution from cigarette sector, comes from only two companies i.e., Pakistan Tobacco Company and Phillip Morris.

With increasing revenue contribution from these companies, the incidence of illegal trade in cigarettes is also increasing exponentially and currently stands at an alarming 25%+.

Tax evasion in cigarette sector alone has resulted in a loss of over Rs 80 Billion to the Government exchequer over the past five years and is expected to far exceed Rs. 100 billion in the next five years.

The cheap illegal brands on which no duty is paid are widely available across the country and are sometimes sold at a price much below the minimum tax payable per cigarette pack. Due to the low purchasing power, the consumers get attracted to these products, with retailers often pushing for these brands, enjoying higher margins.

According to industry sources, legitimate industry has stagnated over the last few years owing to the problem of illicit trade, which is expected to further worsen in the wake of little or no enforcement.

According to sources in government, enforcement against these illicit brands is being stepped up as national exchequer may lose billions of rupees in revenues in the next five years if nothing is done.