Experts told Business Recorder here on Friday that apparently Sales Tax Act 1990 and Federal Excise Act 2005 are directly in clash with the Competition Act 2010 as far as cigarette industry is concerned. Different kind of treatment to the multinationals and local manufacturers has created distortion in the market which needs to be checked by the CCP under its relevant laws.
Local cigarette manufactures of Mardan are operating under the supervised clearance system. This shows that the excise inspectors or Inland Revenue officers are present at the gates of cigarette companies for clearance of the cigarettes to ensure payment of the Federal Excise Duty (FED) and sales tax.
On the other hand, an entirely different arrangement has been made to facilitate two leading cigarette manufacturers. Multinational companies have been allowed to clear their consignments of cigarettes from factories on self-clearance basis without the presence of tax officers.
The CCP has to ensure that level playing field should be provided to all players in a specific industry or sector. In existing arrangement, no level playing field has been provided to the local manufactures as compared to multinational cigarette manufacturing companies under Sales Tax Act 1990 and Federal Excise Act 2005. In such a situation, it is a clear violation of competition law in Pakistan.
Sources said that FBR under the relevant tax laws have given free hand to multinational cigarette manufacturers to clear their products under self-clearance system. Whereas, there is a 24 hours check on the products cleared by the local manufactures of Mardan. This has resulted in competition issues which should be investigated by the CCP.
The commission can investigate whether such arrangement is creating any distortion in the market where one side has no check on clearance of finished products but the other have to show all clearances to the tax officers deputed at factories.
Section 3 of the Competition Act is related to the abuse of dominant position under which 'no person should abuse dominant position'. The CCP can check whether FBR's arrangement for clearance of cigarettes from multinationals and local manufacturers has violated section 3 of the Competition Act. Section 4 of the Competition Act deals with the prohibited agreements and CCP can also refer to this provision of law for examining the existing arrangements of clearance of goods from cigarette factories.
When contacted, a tax expert said that the rescinded Central Excise and Salt Act 1944 imposed supervised clearance system for all excisable commodities including cigarettes. The Central Excise and Salt Act 1944 was replaced with Federal Excise Act 2005 bringing all excisable commodities under the self assessment regime. Cigarette manufacturers were allowed to clear their consignments under self clearance system. Federal Excise Act 2005 has given equal treatment to all excisable commodities.
The FBR has invoked powers under section 40B of the Sales Tax Act to depute sales tax officers at the cigarette factories of Mardan to check tax evasion. Section 40B has been invoked in special circumstances to monitor and supervise production, manufacturing and clearances in case of tax evasion. The competition issue would arise when Federal Excise Act 2005 has differentiated between multinationals and local manufacturers for clearances. Federal Excise Act 2005 has not been amended to allow self-clearance to multinationals and supervised-clearances to local manufactures.
Section 40B has been exercised due to low payment of taxes by the local manufactures. The supervised clearance is an entirely different system where all excisable records and clearances have been monitored by tax officers to check tax evasion. The FBR invokes section 40B of the Sales Tax Act whenever required. Under section 40B (Posting of Inland Revenue Officer), the FBR may post tax officer to premises of registered persons to monitor production, sale of taxable goods and stock position.
It is a fact that the FBR has given free hand to the multinationals since introduction of self-clearance system and detailed audit by tax officials having field experience of cigarette industry would help in checking tax affairs of the multinationals, tax expert added. It is worth mentioning that the CCP had issued a 'policy note' dated June 2, 2009 to the FBR on the issue of fixation of minimum price in the cigarette industry.