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ISLAMABAD: International tax expert Dr Ikram-ul-Haq has recommended the budget markers to increase the Advance Adjustable Tax on Unmanufactured tobacco to Rs 500/kg to increase documentation in the upcoming budget (2020-21).

According to the recommendations of the international tax expert on this crucial issue, this Adjustable Advance Tax is a FED adjustable against final liability and is to be paid by manufacturers. "Not farmers". The actual excise that manufacturers pay, this input tax will be adjusted and cleared with no additional payments. It is to strengthen the documentation measure and increases the monitoring at a very critical stage in the supply chain.

Dr Ikram-ul- Haq explained that last time when this Advance Tax was raised it reduced the illegal Duty Not Paid sector. They turned to various tactics trying to malign this right documentation measure and saying it was an additional tax on farmers. This is and was far from the truth. The law is clear and this is not for farmers. This measure of increasing an adjustable advance tax ensured that it if had to be reclaimed and adjusted by the Duty Not Paid manufacturers, then at least, in part a higher portion of the actual due Excise would be revealed. This would thereby start showing that these illegal operators are underreporting and evading billions in taxes each year, the international tax expert added.

Globally renowned tax expert submitted the said recommendations to the National Assembly Special Committee on Agricultural Products.

Background of issue revealed that in the Supplementary Budget that was presented in 2018, the PTI government and Federal Board of Revenue (FBR), in order to curtail the illicit tobacco trade and document all the tobacco purchases in Pakistan, had imposed Rs 300/KG Advance Tax at the Green Leaf Threshing (GLT) stage. This was an adjustable tax for cigarette manufacturers, having no additional burden on tobacco farmers and exporters.

Since its implication, the local illegal cigarette manufacturers from KPK influenced the farmers to protest against the Advance Tax Rs300/kg and present it as a burden on the farmers, whereas the reality was completely the opposite. In the Finance Act 2019-20, the government succumbed to the powerful illicit tobacco manufacturers who successfully pressured the government to abolish Rs 300 adjustable tax. It was noted that mounting political pressure from local cigarette manufacturers, who also happen to be part of the KPK provincial government led to the removal of this tax.

Now to for the FY 2020-21, FBR is again trying to implement this advance tax on the tobacco manufacturing companies to ensure complete documentation of the tobacco purchases. This time, the proposal is to increase the advance tax from PKR 10 to PKR 500.

As soon as FBR started analyzing the implications of this advance tax, the lobby for local manufacturers who continue to under-declare their production again started their lobbying efforts by activating the Speaker of National Assembly to call a meeting with FBR and farmers.

Sources said that the rights of the farmers are protected by laws made by the government and the local illegal manufacturers are causing the damage to the livelihoods of the actual farmers and making it a political game. Some farmers incorrectly claim that they will be exploited since due to the 'adjustable' excise duty, the demand for tobacco will go down and the farmers will be left with unsold crop. It is a fact that Section 20A of the Pakistan Tobacco Board (PTB) Ordinance 1968 gives full protection to the farmers and makes it compulsory for tobacco companies to purchase any surplus of excess unsold tobacco by the tobacco manufacturers.

Some farmers also incorrectly claim that that they will be exploited since due to the 'adjustable' excise duty, they will be offered a lower price for their crop. This again is a misstatement since the Minimum Indicative Price (MIP) of tobacco is fixed each year by Pakistan Tobacco Board with full representation of the farmers and this is the minimum price per kilogram of tobacco which is offered to the tobacco farmers. Any purchase below the minimum price is illegal and prohibited under the PTB laws.

Farmers are being misguided and exploited at this stage by the local illegal cigarette manufactures since this levy not only forces them to pay on the adjustable tax on processed leaf but also provides FBR with leaf purchase data for all manufacturers.

This tax is advance and adjustable and applied on manufacturers and does not hurt the farmers at all whereas local illegal cigarette manufacturers continue to misguide the farmers of KPK for their own benefits.

Copyright Business Recorder, 2020