FBR likely to reinstate tier-III system on tobacco sector

ISLAMABAD: Apart from increasing federal excise duty (FED) on tobacco products, the Federal Board of Revenue (PSX) is also considering reinstating the “tier-III system” on the tobacco sector.

This was stated by tax officials during a meeting of the sub-committee on agriculture, which was held under the chair of Member National Assembly (MNA) Shandana Gulzar Khan.

The tax officials shared with the members the FY20 budget proposals they had received from tobacco sector stakeholders.

It was informed that the department is mulling to increase FED on tobacco products, besides reinstating tier-III as well as track & trace systems.

Two prominent companies on the occasion urged the government to increase the ratio of advance tax from Rs10 per kg to Rs500 per kg in the next budget, as “there is a dire need to increase advance tax to document the sector”.

Committee member Ahsan Towana termed the imposition of advance tax on the sector as ‘unjustified’, claiming that it would ultimately hurt the farmers.

On this, tax officials said that the advance tax charged on tobacco is, in fact, collected from manufacturers and is not transferred to farmers. The advance tax on tobacco had been lowered down to Rs10 per kg from Rs300 per kg with the parliament’s approval in 2018, they informed.

It was further revealed that the Federal Board of Revenue is expecting Rs110 billion in taxes from the tobacco sector during the current fiscal year. The department had collected Rs124 billion in 2019, Rs93 billion in 2018, Rs83 billion in 2017, and Rs114 billion in 2014.

The officials claimed that the department is currently facing a shortage of manpower, owing to which meaningful action against illegal tobacco products is not being taken.

They termed the perception that “imposition of levy the tobacco products increases the risk of smuggling” as wrong, adding that around 20pc cigarettes in the country are smuggled.

Meanwhile, the Pakistan Tobacco Board chairman objected the imposition of Rs500 per kg advance tax on tobacco products, saying that the step would reap no benefits since good quality tobacco is already available at Rs203 per kg in the market.

Tax expert Dr Ikramul Haq alleged that the FBR officials are not showing the true picture to the members, as the consumption of tobacco had increased with the end of the third-tier system in the country. FBR only looks at this sector for revenue purposes, while nobody cares about the dire health consequences of tobacco, he added.

He also asked the PTB chairman about the tax collected through the imposition of 5pc tax on cigarettes.

On this, the PTB chairman stated that the government had collected Rs462 million in 2018, Rs465 million in 2019 and Rs531 million in 2020.

Speaking on the occasion, committee convenor Shandana Gulzar said that farmers’ welfare is among the top priorities of the government, “but we will also keep in mind the health aspect”.

She assured the members that the government would prepare such proposals that would be acceptable to all stakeholders.

The convenor directed the PTB chairman as well as tax officials to submit within a week tax collection data from the tobacco sector, consumption of cigarettes in the last five years, tobacco production cost, and proposals to document the sector.


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