Senate body demands report from FBR over tobacco revenue shortfall

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ISLAMABAD: A special committee of the Senate on the decline in tax collection from the tobacco industry has sought a report in 15 days from the Federal Board of Revenue (FBR) on the causes of revenue shortfall following the change in the tax structure that overly benefited multinational cigarette companies.

FBR officials assured the committee that taxes would be increased in an attempt to discourage smoking.

The special committee, which met on Wednesday and was chaired by Senator Kalsoom Parveen, took strong notice of the drop in revenue receipts from the cigarette industry following the introduction of the third slab of the Federal Excise Duty (FED).

The committee is probing a loss of Rs33 billion to the national exchequer due to the change in the tax structure during the tenure of the Pakistan Muslim League-Nawaz (PML-N) government.

It will submit a comprehensive report to the Senate after completing the investigation.

During the rule of the previous government, the Public Accounts Committee (PAC), in its meeting held on 23 May also recommended a Supreme Court-led investigation on the basis of a special report prepared by the Auditor General of Pakistan (AGP) on the causes of a decline in tax collection from the tobacco sector.

After the introduction of the third tax tier, two major players shifted their famous brands to the lowest tax slab and sold cigarettes with 50 per cent reduction in the FED which enhanced their sales, and as an effect, plunged government revenues, according to the audit report.

During the Senate body meeting, chairperson Parveen said taxes of billions of rupees were being evaded and tax collection from the cigarette industry dropped from Rs120 billion to Rs70 billion. She asked who was involved in the massive tax evasion?

Senator Dilawar Khan said tax officials were involved in the evasion and claimed that he could even disclose names of those officials in an in-camera briefing.

FBR officials said illegal cigarette sales were the cause of a drop in revenue collection from the industry.

The FBR chairman said the government wanted to bring more people under the tax net following the reduction in taxes. Strong action was being taken against those involved in the illegal sale of cigarettes, he said, adding they were ready to review the taxes applied on the cigarette industry.

The health secretary rejected the FBR’s point of view, saying cigarettes became cheaper due to the reduction in taxes and millions of people died due to smoking.

He revealed that cigarette production of many companies had increased manifold, adding that revenue collection from the cigarette industry stood at Rs114 billion in 2015 which dropped to Rs88 billion in 2016, saying that, “A probe should be conducted in this regard.”