ISLAMABAD: Pakistan’s Auditor General has started a forensic audit of multi-national companies (MNCs) of tobacco sector and sought necessary record from MNCs to conclude the audit within 15 days in light of Public Accounts Committee’s (PAC) directions, it has been learnt.
Official sources at Auditor General of Pakistan (AGP) on condition not to be named informed that AGP has launched a special audit of international companies engaged in the tobacco sector of the country, following the direction from PAC. They said the AGP has sought all necessary record from the tobacco manufacturing industry. And, this special audit to be completed within 15 days as per PAC’s directions, said sources.
The sources also said that the special audit of MNCs will analyse the production of tobacco manufacturing industry and rate of tax collection from the tobacco sector. They said tax collection has witnessed decline while production went up 100 per cent in recently. Moreover, the audit will see how much tax MNCs are paying to the Federal Board of Revenue (FBR). Also, MNCs reduced cigarette price by 50 per cent while their production has recorded 100 per cent increase in 2018, said sources.
Taking cognizance of billion rupees worth decrease in tax collection from tobacco manufacturing industry, PAC Chairman Syed Khurshid Shah summoned FBR chairman to appear on May 30, 2018, before PAC. During PAC’s proceeding, PAC passed directions to AGP to conduct a special (forensic) audit of the MNCs in tobacco sector to find out the facts behind a massive decrease in the tax collection from country’s tobacco sector.
PAC chairman expressed serious concerns over the reduction in tax collection from the tobacco sector. He said FBR had collected Rs107 billion revenue from tobacco sector in 2014, while Rs114 billion in 2015, Rs84 billion in 2016 and Rs92 billion to be collected in 2017. He said though FBR has introduced third slabs on cigarette price to control the sale of non-custom paid cigarette (illicit trade) and increase in smoking rate among countrymen, however, smuggling (illicit trade) continues and smoking rate is ever increasing in the country. MNCs had reduced cigarette production by 50 per cent in 2016 in a planned manner only to get the introduction of third-tier structure on cigarette price, said Khursheed Shah.
“Third slab has caused Rs30 billion loss while 158,000 cases of cancer surfaced due to smoking and FBR has made cigarette price cheaper only to benefit MNCs,” said PAC Chairman Syed Khursheed Shah.
Chairman added that the only solution to control the increase in smoking rate is to jack up the price of cigarette in the country.
A spokesman of AGP when contacted confirmed the information and said a special audit of MNCs engaged in tobacco sector the country is initiated and it will be completed in the light of PAC’s directions. Meanwhile, he reassured PAC’s directions will be followed in true spirit.
It is relevant to mention here that FBR has retained the third slab of federal excise duty (FED) on cigarette prices and set aside stakeholder’s recommendations, asking to jack up the FED of first two slabs in the finance bill 2018-19.
Rejecting the recommendations of the Ministry of Health, the National Assembly Standing Committee on Finance and the Chairman Public Accounts Committee (PAC) to jack up the FED imposed on cigarette prices by Rs44 per pack, FBR has increased FED rate by only 96 paise per pack of cigarette in the Finance Bill 2018-19.
According to the Finance Bill 2018-19, FBR has increased FED by 6 per cent for all three tiers of cigarette prices. For the first slab on cigarette price, FED of Rs4.48 per pack while Rs2.00/pack for the second slab, and only 96 paisas per pack on the third slab.
Sources in FBR on condition of anonymity said that FBR has collected only Rs87 billion from the tobacco sector during the ongoing financial year which is far behind the actual target of Rs120 billion. They said that although the production of cigarettes increased by 100 per cent, FBR’s tax collection from tobacco sector has witnessed a 10 per cent decline during the said year. However, FBR has rejected the recommendations of Health Ministry, parliamentary panel, NGOs, think tanks, and retained the third tier of structure on cigarette prices in the finance bill 2018-19.
The sources also informed that due to FBR’s measures, cigarette production would touch 60 billion annually, while around 2.5 million young people will become smokers and the national exchequer will face almost Rs40 billion in revenue losses during the current fiscal year, only because of cheaper prices of cigarettes in the country.
Surprisingly, Pakistan is a signatory of the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC), and under the treaty, the government is bound to increase taxes to reduce tobacco consumption in the country. However, FBR has finally declined to withdraw third tier structure which has so far apparently caused a massive increase in death rate due to ever-increasing smoking rate in the country. The FBR has rejected the recommendations of Health Ministry, PAC chairman, Standing Committee of National Assembly and Senate, Sustainable Policy Development Institute (a think tank), Pakistan National Heart Association (PANAH) and maintained third tier structure on future cigarette price in the finance act 2018.
