FBR reveals Rs400 billion tax evasion in tobacco and poultry sectors

Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial revealed that tax evasion in the tobacco and poultry sectors has reached nearly Rs 400 billion, underscoring significant gaps in the country’s tax collection system. 

Speaking during a meeting of the National Assembly’s Standing Committee on Finance, Langrial highlighted that despite efforts to combat illicit trade, the tax machinery faces severe manpower limitations.

The chairman disclosed that only one out of every 10 trucks carrying smuggled cigarettes is confiscated, with most evasion going unchecked due to the insufficient capacity of the current enforcement system. 

Langrial emphasized that empowering provinces to tackle illicit cigarettes at the retail level, with the help of local law enforcement agencies, could be a key step in curbing the issue.

Regarding the tobacco sector, the FBR chairman estimated that Rs 300 billion in tax evasion occurs annually. He explained that any cigarette lacking the mandatory stamp is considered illegal, and the FBR plans to collaborate with provincial law enforcement to combat this illicit trade. 

The FBR is also working on a standard operating procedure (SOP) for enforcement, which will increase penalties for non-compliance. Langrial predicted at least a 10% impact in terms of tax recovery once these measures are fully implemented at the provincial level.

While discussing the poultry sector, Langrial pointed out that the sector, which should be contributing Rs 10 billion in taxes, currently only pays Rs 1.3 billion. The poultry industry, known for its high-profit margins—where chicks purchased for Rs 70-80 are sold for as much as Rs 180—has been underreporting income due to the absence of proper cost accounting in income tax returns. 

The FBR’s market intelligence suggests that daily production in the poultry sector ranges from 800,000 to 900,000 chicks, but due to the lack of transparent accounting, tax collection remains substantially lower than it should be.

Officials estimate that the poultry sector has outstanding dues totaling around Rs 150 billion over the past five years, with annual liabilities reaching Rs 30 billion. Langrial acknowledged that when the FBR takes action, the sector’s declared sales prices are often altered, which complicates enforcement.

Chairman of the Standing Committee, Syed Naveed Qamar, raised concerns that the new powers granted under the ordinance could lead to increased harassment of businesses. Langrial, however, maintained that these steps were necessary to close the significant tax gaps and ensure fair tax collection across industries.