‘Illicit cigarette manufacturers exploit export quotas, evade advance tax’

LAHORE: The so-called companies manufacturing illegal brands of cigarettes are evading taxes at the retail level and also under the guise of exports, causing huge damage to the national exchequer.

“The companies manufacturing and selling illegal cigarettes are also involved in the evasion of advance tax collected on tobacco processing, said an expert, adding: “Manufacturers involved in illegal sale while buying processed tobacco from green leaf threshing units declare that tobacco is being bought for exports but the huge quantity purchased without payment of advance tax is being sold in the local market.”

It may be noted that the government has imposed an advance tax of Rs 390 per kg on the purchase of tobacco from green leaf threshing units to monitor the production and sale of illegal cigarettes and bring them into the tax net. This tax is adjustable and the burden does not fall on the tobacco farmers as it is an advance tax collected from the manufacturers which can be adjusted.

As per Pakistan Tobacco Board statistics, during the financial year 2021-22, a total of 52 cigarette manufacturers bought 22.3 million kgs of tobacco worth USD 65.2 million. The organized industry comprising the top three tax-paying companies bought around 12.39 million kgs of tobacco worth USD 53.4 million while other 49 manufacturers bought 10 million kgs of tobacco worth USD 11.8 million.

According to estimates, more than 90% of the tobacco purchased by 49 manufacturers was sold in the form of cigarettes without paying tax in the local market, causing a loss of Rs. 4 billion to the national exchequer in advance tax alone.

Statistics also show that not all tobacco purchased from green leaf threshing plants is exported. During the financial year 2021-22, the export of tobacco and alternative products made from tobacco was 56.9 million dollars, while according to the statistics of Pakistan Tobacco Board, 22.3 million kilograms of tobacco worth 65.2 million dollars were bought for export during this period.

Companies involved in the illegal sale of cigarettes are committing double tax evasion. On one hand, advance tax is being stolen on the purchase of tobacco from green leaf threshing units, while on the other hand, due to non-payment of duties and taxes on the retail sale of cigarettes, the national exchequer is being damaged to the tune of approximately of Rs.80 billion annually.

Copyright Business Recorder, 2023