Due to over taxation, the Federal Board of Revenue (FBR) is faced with a massive revenue loss of Rs 40 billion in the cigarette sector during the current financial year.
An official source said FBR has managed to collect Rs 72 billion in taxes on cigarettes during the first eleven months of the current financial year (FY17) as compared to tax collection of Rs 112 billion during the last financial year. During the last month of the fiscal year, FBR may not get more than Rs 3 billion despite all its efforts.
The cigarette manufactures in Khyber Pakhtunkhwa and Azad Jammu and Kashmir (AJK), the source said are supplying huge quantity of low-priced cigarettes in the country, resulting in dumping of tax evaded tobacco products. They are selling cigarettes at a retail price which is less than the minimum tax threshold of Rs 44 per pack.
The source said the trucks carrying tax evaded cigarettes manufactured in AJK travel throughout Pakistan without any check by the AJK tax authorities at border areas. Most of the low quality and low priced cigarettes being sold in Pakistan is made by AJK based cigarette manufacturers.
FBR has asked the government to seek assistance from AJK government to control the situation, as FBR’s repeated requests to AJK tax authorities to stop movement of low-priced cigarettes have not yielded positive results. Moreover there is no mechanism for online verification of payment of duty/taxes on cigarettes being manufactured in AJK. Therefore, for Pakistani tax authorities all AJK origin supplies remain un-vouched, the source said.
The AJK tax authorities and AJK Council were requested that proper and formal liaison is required for regular communication of information including list of cigarette manufacturers along with schedule of machinery installed and its manufacturing capacity, complete list of Pakistan and AJK based sole agents, distributors and wholesalers of aforesaid manufacturers and payment of duty and taxes made by each manufacturer since July, 2015 till March, 2017.
FBR has proposed increasing punishment for stocking, transporting and selling of tax evaded brands. However, source the said the scheme would not be successful without either bringing the manufacturers in the tax net to closing their operations.
The government has decided not to increase tax on the multinational tobacco brands as huge difference between prices of local and multinational brands have badly affected the profitability of the multinational companies. The government has introduced a third tier for local brands and they will be traced and tracked through third party system to plug the leakage of revenue.