Illicit Tobacco Manufacturers- A Menace to the Development of Pakistan

Pakistan has more than 50 cigarette manufacturers out of which more than 45 belong to the tax evading segment. One of the reasons they breed in the system is they buy off seats in the government or have high-level government associations. They evade more than PKR80 billion in taxes. Brands like Rangers, Olympic, Kissan cripple the system.

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Tobacco

Tax evaders pressurize the government and primarily FBR through farmers for withdrawal of the newly applied GLT advance excise. This major documentation measure will assist in documenting the economy but the illicit manufacturers create a false impression of farmers being taxed. The poor farmers are used and abused and sent to the court of law to obtain a stay order. Like in 2018 Hammad Azhar, applied PKR300 on GLT, and because of intense pressure from the illicit segment and Asad Qaiser, had to reduce the tax amount to PKR10/kg.

According to the FBR spokesperson, FED on un-manufactured Tobacco has been enhanced from Rs 10/per kg to Rs 390/per kg w.ef 23.08.2022, through promulgation of Tax Laws (Second Amendment) Ordinance,2022, in terms of S.No 7 of Table 1 of First Schedule to the Federal Excise Act 2005.

Newly imposed advance excise duty on tobacco purchase will not impact farmers but manufacturers and would dent the massive tax theft in the tobacco sector.

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

According to the FBR spokesperson, FED on un-manufactured Tobacco has been enhanced from Rs 10/per kg to Rs 390/per kg w.ef 23.08.2022, through promulgation of Tax Laws (Second Amendment) Ordinance,2022, in terms of S.No 7 of Table 1 of First Schedule to the Federal Excise Act 2005.

He added that the FED is chargeable on unmanufactured Tobacco for manufacturers of cigarettes by the Green LEAF Threshing Units (GLT Units) after processing and conversion of tobacco green leaf as defined under sub-section (2A) of section 2 of the Federal Excise Act 2005.

He said that the amount of FED is adjustable in terms of section 6 of the Federal Excise Act 2005, from the amount of duty collected. Therefore, the main purpose of imposition of FED on unmanufactured tobacco is the documentation dormant undocumented segments of Tobacco industry.

Furthermore, he added that no FED is imposed or chargeable on raw tobacco leaf supplied by the tobacco growers/farmers to the GLT Units.

Experts believe that the imposition of advance excise duty has been instrumental in documentation of the purchase of tobacco by manufacturers of cigarettes and other tobacco products as all manufacturers who purchase tobacco from farmers must process tobacco through GLT plants.

It is pertinent to mention that the previous government had increased the tax on tobacco from Rs. 10 per kg to Rs. 300 per kg, however, it had to retract the decision due to pressure from lobby sitting in power corridors, related to illegal cigarette producers.

The government must take a strong stand on this decision. Otherwise, it may help the rise in illicit trade as it will once again give these illegal manufacturers the opportunity to hide their actual tobacco purchases and channel the unlawfully gained revenues from this evasion into marketing and fiscal violations.

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