Sources said that the advance tax of Rs 300 per kg is applicable only on the tobacco that enters the Green Leaf Threshing (GLT) plant. All manufacturers who purchase tobacco from farmers must process tobacco through GLT before it can be used for manufacturing of cigarettes. The measure has been instrumental in documentation of the purchase of tobacco by manufacturers of cigarettes and other tobacco products. It is an adjustable tax having no additional burden on the manufacturers.
Sources said that the local cigarettes manufacturers are pressurizing the FBR for withdrawal of this major documentation measure in budget. As a result of this lobbying and pressure on FBR, the government may propose abolition of the adjustable tax, but it would again result in massive tax evasion and supply of non-duty paid tobacco from GLT units.
The FBR had issued SRO.217(I)/2010 and SRO.1149(I)/2018 to ensure monitoring and documentation of tobacco to check evasion during purchase of tobacco.
The government's decision to withdraw this tax may facilitate the rise in illicit trade as it will once again give these local manufacturers the opportunity to hide their actual tobacco purchases and channel the unlawfully gained revenues from this evasion into marketing and fiscal violations.
As soon as the manufacturer's tobacco enters the GLT for further processing into usable tobacco, the manufacturer is bound to pay a tax of Rs 300 per kg to the FBR. This tax is refundable/adjustable and does not add any additional burden on the manufacturer. However, it notifies the FBR of the quantities that have been purchased by the manufacturer.
This is totally unjustified to abolish documentation measure merely on the request of local cigarettes manufacturers, who do not want to document or record actual amount of purchase of tobacco processed through the GLT units to evade taxes and actual quantity of manufacturing of finished product.
In 2010, the FBR had issued a SRO.217(I)/2010 with the objective of documentation of record of the tobacco.
This measure has been introduced to monitor and curtail the manufacture and sale of non-duty paid cigarettes. The FBR is able to track and penalize the non-duty paid cigarette manufacturers that resort to underhanded tactics by making illicit purchases subsequently leading to tax evasions in payments made.
The FBR had later issued SRO 1149(I)/2018 to stop tax evasion in the tobacco sector through this documentation measure.
Under SRO 1149(I)/2018, the FBR started strict monitoring of Green Leaf Threshing (GLT) units, whether working separately or as part of a cigarette manufacturing unit.
The commissioner having jurisdiction shall post officers of Inland Revenue at the premises of GLT Units, whether working separately or as part of a cigarette manufacturing unit, for monitoring the receipts, processing, wastage, storage, issue of un-manufactured tobacco for sale, transfer or self consumption. They shall also stamp and sign the tax invoice issued by the GLT units.
It shall be the responsibility of GLT units to provide the officers, so posted, with in-house accommodation and office space to enable them to perform their duties in an efficient manner. The officers posted at the GLT units shall be responsible for framing a daily report of receipts, processing, wastage and issuance of tobacco and duty leviable thereon to the concerned commissioner for reconciliation with monthly returns.
The FBR said that at the time of sale of processed un-manufactured tobacco to a cigarette manufacturing unit or any other person, in case of an independent Green Leaf Threshing (GLT) unit, or transfer thereof for in-house manufacturing of cigarettes by a composite GLT unit, a tax invoice, as set out in Annexure-I, shall be issued. In case of export of processed un-manufactured tobacco by GLT units, such manufacturer or person shall be entitled to zero rating in terms of section 5 of the Act and shall issue zero rated invoice.
The FBR has also imposed a bar on sale to inactive persons. A GLT unit shall not sell un-manufactured tobacco to any person who is not on Active Taxpayers' List maintained under the Act.
For cigarette manufacturing factories operating their own GLT, the FBR said that the cigarette manufacturing factories operating their own GLT units shall be required to issue invoices and pay duty as stipulated in Rule 82 and shall maintain separate invoice book, register of receipts, issue and balances as prescribed in Annex-II.
Under the procedure, all vehicles transporting un-manufactured tobacco shall be liable to carry a copy of federal excise invoice as evidence of chargeability of federal excise. The documents and requirements prescribed in the federal excise Notification No. SRO 217(1) 2010, dated the March 31, 2010 shall also be applicable, mutatis mutandis, to the unmanufactured tobacco, along with additional requirement, as specified in sub-rules (2) and (3). The additional requirements shall also be applicable to cigarettes.
The tax invoice of un-manufactured tobacco, stock transport advice-cigarettes, sales-cum-transport invoice shall be generated through FBR's e-portal.
The invoices and advices as prescribed shall bear unique and distinguishable serial numbers. Provided that till such time, the FBR's e-portal is not developed for the transactions stipulated herein, or in the event of a natural disaster, national calamity or a government ordered network and data services shutdown, which result in severed internet connectivity, the manually prepared invoices or advices, duly authenticated by the officers posted, may be used and the same should be uploaded when the connection is restored, the FBR added.