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ISLAMABAD: The Federal Board of Revenue (FBR) collected Rs160 billion tax from tobacco manufacturers last year, which includes Rs157 billion paid by two mega tobacco manufacturers.

The Public Accounts Committee (PAC) met here at the Parliament House to examine the FBR’s Audit Report 2019-20. A brief was also distributed among members on the evasion of taxes and duties by all tobacco companies.

Noor Alam Khan chaired the meeting.

There are 22 cigarette manufacturers in the country. The tobacco industry is an imperfect market, with two players taking up 70 percent of the market share, their contribution to taxes in the form of federal excise duty (FED) and sales tax (ST) is around 98 percent. Local tobacco contributed only two percent of the total FED/ST.

The illicit tobacco trade is a concern for the authorities.

The FBR is cognizant of tax evasion in the tobacco sector.

Though large-scale manufacturing (LSM) being the major and comparatively well-documented sector of the economy, contributes a significant portion of total federal tax revenue.

However, the full real federal tax potential in the LSM segments such as tobacco is yet to be realised. In order to control tax evasion and illicit trade of tobacco products, the FBR has introduced digital monitoring of the production and sale of all tobacco products in 2021.

For this purpose, the FBR issued a license of the implementation of track and trace system (TTS) in March 2021.

Three large manufacturers including two multinationals i.e. PTC PMI, KTC have implemented automated track and trace system and six small tobacco companies are applying tax stamps manually on their products.

The FBR is facing legal challenges in the implementation phase of TTS.

Local tobacco manufacturers have obtained a stay order from the Islamabad High Court (IHC) against the implementation of the FBR’s track and trace system in August 2022

In a written brief, the FBR says, according to a report, “Quantifying the Potential Tax Base of Cigarette Industry in Pakistan” released by Social Policy and Development Centre (SPDC) in 2019, the problems in the tobacco industry reach for beyond smuggling, and expands in the myriad of ways that the industry is underreporting production and sales. This self-assessment has led to an approximate loss of Rs40-50 billion per annum for the national exchequer.

Euromonitor International in its report “Cigarettes in Pakistan - issued in January 2014 claimed: “The illicit cigarettes consist of around 39 percent of total volume sales of cigarettes in 2012”. This report also stated that legal cigarette turnover was 64.5 billion cigarettes.

While examining an audit para, an audit official apprised the committee that the bureau had to face a financial loss of Rs2.56 billion for not collecting value addition tax in 6,874 cases. Duty was supposed to be collected on imported and confiscated items.

Copyright Business Recorder, 2022

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