Rs 116.5bn revenue expected from tobacco sector

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ISLAMABAD: The government is expected to generate taxes of rupees 116.5 billion from the tobacco sector in the ongoing fiscal year. Out of total of 116.5 billion rupees, two multinational tobacco companies will pay 115 billion rupees while tax collected from the more than 50 local cigarette manufacturers is going to be mere 1.5 billion rupees.

According to the sources, tax evasion in tobacco industry is causing 33 billion rupees loss to the national exchequer per annum.  At present, the volume of total cigarette market in Pakistan is around 80 billion sticks, out of which the share of legal cigarette market is 67 percent and illegal cigarette industry’s market share is around 33 percent.

According to sources in FBR, an amount of rupees 113.20 was collected from the cigarette industry in FY 2015-16 under excise duty and sales tax. However, a huge decline in the tax collection was noticed in the following FY 2016-17. Resultantly, only 75.50 billion rupees was collected under excise duty and sales tax from the tobacco industry. Within just one year, tax evasion cost the national exchequer an amount of rupees 37 billion. This was due to increase in the sales of illegal cigarettes that were accounted to 41 percent of the total market in June 2017.

Keeping in view the situation, sources say, in FY 2017-18 Government imposed the mechanism of third slab on cigarettes in order to minimize the price difference between the tax paying and tax evading cigarette brands. So that the tax paying sector could get its due share back from the tax evading sector and the tax collected by the government could be increased.

As a result of government’s policies, a decline in the sales of illegal cigarette was seen and tax collected from the tobacco industry was increased due to the third slab policy and in FY 2017-18, 91 billion rupees was collected in terms of taxes. However, due to the continued government’s policies, expected tax collected in ongoing fiscal year is 116 billion rupees.

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