Govt may scrap lowest tax slab for cigarette industry

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cigarette
Tobacco companies had been paying Rs114 billion in taxes, but after the introduction of the third tier, tax payments dropped to Rs79 billion. PHOTO: FILE
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ISLAMABAD:  The new government of Pakistan Tehreek-e-Insaf (PTI) may reverse the decision of the previous Pakistan Muslim League-Nawaz (PML-N) administration that introduced a third slab of federal excise duty (FED) for the cigarette industry, which caused a loss of Rs33 billion to the national exchequer.

After the introduction of the third tax tier in May 2017, two major players in the cigarette industry shifted their famous brands to the lowest tax slab and sold cigarettes with a 50% reduction in FED, which enhanced their sales but government revenues plunged, according to an audit report.

The National Accountability Bureau (NAB) has also initiated a probe into the Rs33-billion loss to the public purse.

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Pakistan National Heart Association (PNHA) General Secretary Sanaullah Ghumman told The Express Tribune that Finance Minister Asad Umar had been a big supporter of withdrawing the third tier of FED when he was a member of the National Assembly Standing Committee on Finance.

Also Read: Cigarette firms have improved sales, pay less tax: NAB report

Therefore, he said they were hopeful that the new government would end the third slab in order to increase tax revenue and discourage smoking in the country.

In a telephonic conversation, he said, Umar was reminded of the change in the tax structure and he assured the association that he would take up the matter.

According to Ghumman, tobacco companies had been paying Rs114 billion in taxes, but after the introduction of the third tier, tax payments dropped to Rs79 billion. However, the production of cigarettes increased as well as the number of smokers.

According to the association’s study, 300 smokers die daily, 5,000 are hospitalised each day and 1,200 young people are addicted to cigarettes on a daily basis. Ghumman recalled that during tenure of the previous government, the National Assembly Standing Committee on Finance had recommended the withdrawal of the third tax slab in the budget for 2018-19.

However, a powerful lobby in the cigarette industry succeeded in persuading the authorities to keep the slab in place.

Despite repeated attempts, the finance minister was not available for comments.

In a letter sent to the Federal Board of Revenue (FBR), the Ministry of Health secretary cited the PNHA’s letter to the prime minister in which it requested him to abolish the third duty slab as it led to increase in smoking.

A special committee of the Senate is also probing the Rs33-billion loss to the national exchequer. It will submit a comprehensive report to the Senate.

The Public Accounts Committee (PAC), in its meeting held on May 23, had recommended a Supreme Court-led investigation on the basis of a special report prepared by the Auditor General of Pakistan on the causes of decline in tax collection from the tobacco industry.

Officials in the cigarette industry said the introduction of the third tier had resulted in an increase in revenues of multinational companies as consumption of their brands rose whereas almost 10 cigarette factories closed down.

As a signatory to the Framework Convention on Tobacco Control, Pakistan has to implement tax and price policies for tobacco products in a bid to reduce its consumption.

According to the World Health Organization (WHO), excise duty should account for at least 70% of retail prices for tobacco products. Moreover, Pakistan is obliged to achieve the targets set in the Sustainable Development Goals (SDGs).

(This news/article originally appeared in The Express Tribune on September 2nd, 2018)

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