The documented tobacco industry has urged the government to adopt a balanced fiscal approach with effective enforcement measures to curtail the sale of tax-evaded cigarettes, which would generate revenue over and above Rs 115 billion by the end of 2018-19.
Talking to media persons here on Monday, the officials of a leading multinational cigarette manufacturing company informed that documented tobacco industry has estimated that the revenue collection is expected to cross Rs115 billion by the end of 2018-19 provided that FBR continues with the existing third tier taxation system and increased enforcement against illicit cigarettes.
The third tier should remain intact in coming budget to provide an opportunity to the local units to come into the tax net. At present the enforcement efforts are gone down which needs to be geared up, they said.
The manufacturers of illicit and non-duty paid cigarettes units are deliberately making propaganda against the third slab of the Federal Excise Duty (FED) on cigarettes. When third tier was introduced in 2017, over 200 brands of illicit cigarettes were sold in the open market. These manufacturers of illicit cigarettes are selling their products between Rs 15-Rs 30 per pack creating an un-level playing field for the legitimate industry.
They regretted that the report of the special committee on tobacco has not taken the holistic picture of the entire industry.
After introduction of the third slab of the FED on cigarettes and effective enforcement, the market share of illicit trade has dropped from 41 percent to 33 percent, reflecting a decrease of 8 percent. Resultantly, the government generated additional revenue to the tune of Rs 8 billion. With introduction of third tier slab, they said that illicit mafia became desperate to get rid of the third slab as it was hurting their business. The people shifted from usage of illicit cigarette to legal brands due to narrowing down of price differential and reduced taxes on third tier in last fiscal year.
To a query, they said that the consumption of cigarettes has not increased after introduction of the third tier of excise duty. However, the government revenues and volumes of documented industry have increased with reduction in black marketing of cigarettes.
When asked about the track and trace system, the official of Pakistan Tobacco Company said that the documented industry fully supports the concept of tax stamp and implementation of the track and trace system. If effective enforcement is done along with implementation of the track and trace system, it would result into massive decrease in illicit trade business in the country.
Presently, the market share of illicit cigarettes stands at 33% percent and share of legitimate industry in 67%. Local manufacturers are only contributing 2 percent of the total tax collected by the government from tobacco industry.
According to PTC, after introduction of 3rd tier of taxation in 2017, the revenue collection showed substantial increase from Rs 74 billion to Rs 89 billion due to decrease in illicit market share. The continuation of the three-tier taxation system and persistent efforts against illicit cigarettes can help government in big way.
They explained that the share of 33 percent illicit cigarette could be termed as size of Rs 33 billion cost for the national exchequer and mainly influential were part and parcel of this mafia.
They said that as per the health ministry law, tobacco advertisement guidelines 2009, tobacco advertising is completely banned and cigarette manufacturing companies cannot offer cash prizes, incentives or gifts to enhance sale. Moreover, these companies cannot use images of animals and humans on cigarettes pack.
Huge price gap between the legal and tax evaded cigarettes is one of the key reasons of the increased demand for cheap tax-evaded cigarettes widely available across Pakistan. However, local manufacturers are continuously violating the regulations and offering different prize schemes that include motorcycles, Umra tickets, one free cigarette pack on buying of 5 cigarette packs, etc.
According to the SRO of tobacco advertisement guidelines, offering free incentives like free cigarette samples and other such discounts are not allowed.
Local manufacturers are continuing their efforts to increase tobacco use among youth by illegal promotion activities. These local manufacturers are not only violating the advertising guidelines but are also evading billions of rupees due to non-payment of taxes.
They referred to the credibility of the Nielsen, a renowned global agency which conducts credible consumer market research. If a company hires this reputed agency for survey, the agency impartially collects figures and data for finalisation of information.