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ISLAMABAD: To control tax evasion in tobacco sector, the government has increased the adjustable Federal Excise Duty (FED) on unmanufactured tobacco from Rs 10 per kg to Rs 390 per kg, applicable at the Green Leaf Threshing (GLT) stage.

While briefing journalists on the new excise regime on tobacco on Thursday, the officials of the Pakistan Tobacco Company reiterated that the adjustable FED on unmanufactured tobacco has nothing to do with the farmers. This excise is not payable at the stage of farmers.

The adjustable excise is applicable to and payable by the cigarette manufacturers, they said.

The objective of this move is to increase documentation of the tobacco industry and curtail illicit trade. The recent increase in adjustable excise is aimed at increasing the cost of evasion being done by illicit cigarette manufacturers.

This excise is adjustable at the time of filing of returns by the manufacturer. In case of exports, rebate may be claimed at the export stage and for manufacturers, it may be adjusted at the time of filing of the manufacturer’s tax returns.

Officials of the PTC further explained that the adjustable excise duty of Rs 390 per KG is not applicable to farmers at all but is a liability on the cigarette manufacturers at the GLT stage, however, the manufacturers can adjust this in their monthly tax returns. The false narrative being created regarding this adjustable excise having any impact on farmers is completely baseless and false. Illicit manufacturers are trying to influence policies in their favor by promoting this false narrative.

‘Advance tax has no additional burden on tobacco manufacturers’

Officials further explained that the tobacco farmers have nothing to do with GLT stage as threshing is part of cigarettes manufacturing process.

Historically, this adjustable excise duty was increased from Rs 10 per kg to Rs 300 per kg in the mini-budget issued by the PTI government in October, 2018, however, due to pressure from certain quarters it was reversed before the GLTs became operational.

Tobacco industry experts believe that adjustable advance duty at GLT stage is a perfect way to control tax evasion as it is the choking point in the process of manufacturing cigarettes.

Currently, there are approximately 13 GLTs in Pakistan and AJK, where, there are over 40 cigarette manufacturers. With regards to enforcement, it is administratively more efficient to monitor 13 GLTs rather than deploying enforcement officials at over 40 cigarette manufacturers or hundreds of thousands of retail outlets.

The payable adjustable excise at the GLT stage can also be used as a metric to gauge what revenue was received from the manufacturers at this stage and what percentage was adjusted at the time of filing of tax returns.

The government has been requested to carry out strict enforcement across the board for implementation of the adjustable excise duty on unmanufactured tobacco and also for implementation of the Track & Trace regime to help in curbing illicit trade and providing a level playing field to legitimate players in the industry. Simultaneously, monitoring of cigarettes being manufactured in AJK and being transported to Pakistan for sales must also be done and the government must set up check posts at all entry/exit points to and from AJK, officials of the PTC maintained.

Adjustable excise duty will help document the cigarettes business in Pakistan that will not only increase revenue generation for the government but will also help curbing tax evasion. FBR needs to dispel any misinformation with regards to the applicability of the adjustable excise duty on unmanufactured tobacco and be clear that the liability is on the manufacturers and not the farmers.

The government loses approximately PKR 80 Billion in terms of revenue from illicit trade in cigarettes alone.

Tax evasion by the illicit tobacco manufacturers has largely affected the legitimate cigarette industry by making non-duty paid tobacco products easily available for the public and that too at a lower price that the mandated minimum price.

A country where 40% of the cigarette market is illegal, there is a dire need for an immediate action plan regarding the enforcement of tax laws across the board, PTC officials added.

Copyright Business Recorder, 2022

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