Import of raw tobacco at the lowest rate: cigarette industry given unnecessary concessions

The government has given unnecessary concessions to the cigarette industry to import high quality un-manufactured tobacco at lowest rate of 5 percent customs duty despite the fact the Federal Board of Revenue (FBR) can generate a reasonable amount of revenue by increasing customs duty on the items exclusively used in manufacturing cigarettes.
Tax experts told Business Recorder here on Sunday that the cigarette manufacturers had imported huge quantity of un-manufactured tobacco during past few years at applicable minimum rate of 5 per cent duty. The different cigarettes manufacturers imported consignments of raw tobacco which were solely consumed in the manufacturing of expensive brands of cigarettes and cigars etc.
Due to unknown reasons, the FBR has never considered to raise customs duty on the import of superior quality un-manufactured tobacco used in cigarettes and cigars consumed by the rich class. In the past, cigarette manufacturers had imported millions of tons of un-manufactured tobacco. Hundreds of such consignments were imported by the cigarette industry in last few years at lowest slab of 5 per cent duty under Pakistan Customs Tariff (PCT).
They were of the view the FBR Customs Budget Wing had been actively engaged in tariff rationalisation process for the upcoming budget. The Customs Budget team headed by a seasoned customs official and Chief Customs Tariff Dr Naeem Ajaz Qureshi should examine the aspect of enhancing the rate of the duty on the import of un-manufactured tobacco during ongoing tariff rationalisation exercise for 2012-2013.
On one hand, the FBR has been engaged in taking strict enforcement measures to check illicit trade of non-duty paid or smuggled cigarettes. Whereas, nobody in the tax department is ready to propose increase in the rate of customs duty on the import of high quality un-manufactured tobacco during upcoming budget 2012-2013. Even tax department is not read to raise duty from existing 5 per cent to 10 per cent under the existing Pakistan Customs Tariff of 2011-2012.
The FBR has finalised proposed changes in the Pakistan Customs Tariff (PCT) to bring Pakistan''s customs notifications/PCT, etc, in line with the revised HS Code-2012 of the World Customs Organisation (WCO). During the implementation of WCO''s revised HS nomenclature HS-2012, the FBR has the opportunity to increase the rate of duty on the import of high quality un-manufactured tobacco, they said.
According to analysts, the imported un-manufactured tobacco has no other use except production of cigarettes. The FBR rationale for placing import items in the lowest slab of 5 per cent is normally to encourage domestic industry, especially those import items, which have multiple uses in manufacturing. Thus, chemicals and other raw materials are normally in the lowest slab of customs duty.
Taxation structure shows that the un-manufactured tobacco, falling under Pakistan Customs Tariff heading 2401.2000, is liable to 5 per cent duty and 16 per cent sales tax. However, special excise duty (SED) is not applicable to the import of a large number of items. This minimum rate of 5 per cent customs duty has been applicable to the import of raw tobacco for the last many years.
The FBR, Ministry of Health, Special Cell of Framework Convention Tobacco Control (FCTC) and other related departments have continued to ignore a higher slab for this product. Raw tobacco is also produced locally, and also exported. In this case the tax department needs to provide some justification for imported raw tobacco to be placed in the lowest slab.
During the on-going budget exercise, the FBR is reviewing customs duty on import of hundreds of items to encourage local manufacturers and industries. In this regard, the FBR is reviewing the PCT Headings of the Pakistan Customs Tariff to revise tariff structure of various items. At the same time, the government is also discouraging import of luxury goods and non-essential items. The imposition of higher rate of customs duty on the import of un-manufactured tobacco would not only raise customs duty collection, but would also check the consumption of cigarettes in the country.
Globally, highest rate of duty is imposed to discourage consumption of tobacco and cigarettes as compared to Pakistan where lowest slab of duty has been imposed at the import stage. For example, Korea, Indonesia and Malaysia have imposed highest tariff on import of tobacco. In contrast, it appears that FBR has not yet carried out any exercise or international comparison in this regard.
Experts pointed out that cigarette manufacturers usually import huge qualities of this item from Bangladesh, Brazil, Bulgaria, Mexico, Philippines, South Korea, Bulgaria, USA, Indonesia, Thailand, China, Turkey, Tanzania and other countries.
The imposition of higher rate of customs duty on the import of un-manufactured tobacco would not only raise customs duty collection, but would also check the consumption of cigarettes in the country, they added.