Tax-evading Tobacco Sector Runs Anti-Pakistan Agenda with Local Farmers

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Tax-evading Tobacco Sector Runs Anti-Pakistan Agenda with Local Farmers

The federal government’s frequent increase in taxes on cigarettes to cover the budget deficit has itself become an obstacle to the government’s health policy goals.

In the budget 2022-23, the federal government has also set the target of tax revenue from cigarettes from 150 billion to 200 billion rupees through tax measures. To fill the revenue gap, the government has decided to increase the Federal Excise Duty (FED) rate from Rs1,850 per 1,000 cigarettes to Rs2,050 for tier-2 and from Rs5,900 per 1,000 cigarettes to Rs6,500 for tier-1 cigarettes.

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The government has so far increased the taxation rate of 25 percent on cigarettes in the last two months. On tobacco processing at Green Leaf Threshing Processing (GLTP), the tax rate has been increased from Rs10 per kg to Rs380 per kg. However, illegal cigarette manufacturers are misleading tobacco farmers and they are being made to believe that advance tax will be applied to them, however the tax will be paid by manufacturers and not the farmers as per FBR.

According to the experts, the federal government made cigarettes a source of revenue, although the purpose of taxing cigarettes was to remove them from the public’s purchasing power in order to protect human health from the harms of smoking. The government is already failing to keep cigarettes out of the reach of the public, especially teenagers and children. The main reason for this is the illegal sales made by tax evasion.

Legal cigarettes are becoming more expensive due to the increased tax burden on the legal cigarette trade, while tax evasion companies are selling cigarettes in violation of the minimum price set by the government. As a result of rapidly rising inflation in the country and the declining purchasing power of the people, consumers are increasingly shifting to illegal cigarette brands that are being sold at prices up to 60 percent lower than legal cigarettes.

According to the Federal Ministry of National Health Services, 166,000 deaths occur every year due to smoking in Pakistan. According to the ministry, this decrease in the number of smokers is being made up by the young age and children who are addicted to smoking by the easy availability of cigarettes sold below the minimum price and these children are the target of cigarette sellers.

According to experts, the government is failing to stop illegal cigarettes, on the other hand, legally sold cigarettes are being used as a means to meet revenue targets. This policy deviates from the objectives of protecting public health because legal cigarettes will become more expensive and more consumers will switch to illegal and cheaper cigarette brands, including children.

According to statistics, the national exchequer is facing a loss of 80 billion rupees annually due to the illegal trade of cigarettes in the country. The industry and experts say that by applying the country’s laws equally to those who manufacture and sell cigarettes, the government can save a serious loss of 80 billion rupees, which will significantly help in reducing the budget deficit and the income from illicit cigarette trade in the country while health and social damages will also be remedied.

Due to the non-uniform application of laws in the cigarette industry, 98% of the total revenue from cigarettes is paid by the top two companies, while the share of more than 48 other companies is only 2%. The cigarette industry has been demanding uniform application of laws for manufacturers and sellers of cigarettes in the country.

The government has implemented a track and trace system to prevent tax evasion in the cigarette sector, but most illegal cigarette manufacturing companies are engaged in legal proceedings against the system, hampering FBR’s objective.

According to experts, further, an increase in taxes on cigarettes to meet the budget targets will be a means of promoting the illegal cigarette trade in the country. The burden of taxes will have to be borne by the same two companies which are already paying 98% of the taxes generated from cigarettes.

Experts have urged the government to focus on reducing the losses caused by the illegal cigarette trade instead of making cigarettes a source of revenue so as to achieve economic benefits while protecting public health.

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