KARACHI: Cigarette industry, one of the largest tax payer sector, has urged the federal government for uniform implementation of policies and laws to protect the investment in industries that providing employment and revenue to Pakistan.
The tax-paying cigarette industry is among sectors facing a crisis due to non-uniform application of laws and mushroom growth of tax-evaded illicit cigarette trade.
Cigarette is the only sector where more than 40 percent of the market is illegal and tax-evaded illicit brands are publicly available without any check, which is said to have an estimated loss of Rs 70 to Rs 77 billion. Back in 2013 the share of tax-evaded illicit sector was 23 percent but due to lack of policies and systems to counter illicit trade, it has now captured almost half of the market.
Philip Morris (Pakistan) Limited finance director Muhammad Zeeshan said on Monday that if the policies continue in the same direction without taking into account a result-oriented approach, it is very likely that the tax-evaded illicit cigarette market share will further increase, while adding that it will not only hurt the law-abiding legal sector but will be a serious blow to government’s documentation efforts and tobacco control laws.
Only 2 companies with 60 percent market share are paying 98 percent of taxes generated from the tobacco sector while 50+ companies with remaining 40 percent market share pay only 2 percent. It depicts the magnitude of tax evasion in the sector.
“Fortunately, realization of this anomaly exists at the highest level and even Prime Minister Imran Khan has acknowledged tax-evading illicit trade in the cigarette sector. It is high time we start taking actions,” he opined.
He said the main driver of overall growth of the tax-evaded cigarette sector is inconsistent enforcement of national laws and policies, the price gap of legal and illegal tax-evaded cigarettes has risen above 100 percent. “The tax-paying cigarette industry is complying with the government mandated minimum price prescribed under tax laws for the purposes of levy and collection of federal excise duty i.e. Rs 63 per pack, while countless tax-evading brands of cigarettes across the country are being sold as low as Rs 25 per pack” he mentioned.
Zeeshan said legally compliant tax paid cigarettes are becoming more expensive due to taxes while tax-evaded brands are easily accessible, nullifying the objective of imposing levies to control tobacco. In fact, high prices and taxes have become an incentive for the tax-evading illicit sector.
He said research has shown that despite consistent increase in taxes on tobacco, total cigarette consumption remained unchanged. Every time the Government increases taxes, adult smokers switch to cheap, tax-evading illicit brands.
It is ironic that certain civil society organizations are seen lobbying for tobacco control but completely undermine the impact of tax-evading cigarettes. Instead of advocating for strict implementation of tobacco control laws and highlighting the violations by the tax-evading illicit sector, they are seen making recommendations towards government revenue measures, he added.
Highlighting the solution, he said, track and trace system is instrumental to curb tax evasion; this has been acknowledged by Prime Minister Imran Khan as well, while adding that FBR has been trying to initiate the process for its implementation since 2019, till date no major progress has been made as the process keeps getting halted.
Copyright Business Recorder, 2021