‘Advance tax has no additional burden on tobacco manufacturers’

KARACHI: The federal government has increased the tax on tobacco purchasing from Rs 10 per kg to Rs 380 per kg, an increase of 3,800 percent. The tax on tobacco is a cess (tax) whereas the tax imposed on cigarettes comes under excise tax.

Recently, the Khyber Pakhtunkhwa Farmers Rights Protection Association (KPFRPA) has opposed the government’s decision and wrongly associated it with farmers.

However, the above-mentioned advance tax is applicable only on the tobacco that enters the green leaf threshing (GLT) plant. All manufacturers who purchase tobacco from the farmers must process tobacco through GLT before it can be used for manufacturing of cigarettes.

“The measure has been instrumental in documentation of the purchase of tobacco by manufacturers of cigarettes and other tobacco products. It is an adjustable tax having no additional burden on the manufacturers,” said Osama Siddiqui, a macro-economic analyst.

He added that the illegal cigarette manufacturers are pressurising the FBR through farmers for withdrawal of this major documentation measure.

It is worth adding here 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 FBR had issued SRO 217(I)/2010 and SRO 1149(I)/2018 to ensure monitoring and documentation of tobacco to check evasion during purchase of tobacco.

“The government must take a firm stand on this decision. Otherwise, it may facilitate 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”, said Osama.

The manufacturer is bound to pay a tax of Rs 380 per kg to the FBR. This tax is refundable/adjustable and does not add any additional burden on the manufacturer. However, it notifies the FBR of the quantities that have been purchased by the manufacturer.

Copyright Business Recorder, 2022