Tax experts told BR on Monday that the withdrawal of Rs 300 per kg adjustable Federal Excise Duty (FED) on tobacco would have three serious implications. Firstly, local cigarette manufacturers would again start massive evasion of taxes on cigarettes by concealing quantity of tobacco consumed in manufacture of cigarettes. Secondly, this anti-documentation move of the government would send a wrong message domestically as well as globally that Pakistan has taken away the documentation regime. Thirdly, a check on the local cigarette manufacturers to maintain record of the tobacco being consumed would be taken away, resulting in increased illicit trade of cigarettes.
Federal Board of Revenue (FBR) Chairman Shabbar Zaidi had informed the Senate Standing Committee on Finance that tobacco growers/farmers would not be required to deposit the advance tax on tobacco, as it is the sole responsibility of the manufacturers to deposit tax for documentation purposes. The FBR has added an explanation in the Finance Bill 2019 that reads: "The duty payable shall always be borne by the cigarette manufacturer and the burden thereof shall not be passed on to the tobacco grower in any manner." Therefore, the tax would be borne by the manufacturers and not by the farmers or growers, Shabbar Zaidi added.
The Senate Standing Committee on Finance has also withdrawn the recommendation of Senator Kalsoom Parveen on withdrawal of SRO No 1149.
Experts said that astonishingly the tax not applicable on framers/growers have been proposed to be withdrawn on the argument that Rs 300 per kg adjustable FED is being paid by the farmers/growers. This fact has been confirmed by tax authorities at different forums including committees.
The government in Supplementary Budget 2018 introduced this adjustable FED to reduce tax evasion and increase the tax collection from the local cigarette manufacturers who are bound to declare the tobacco they process in order to manufacture cigarettes. This adjustable FED is not burden on farmers, sources suggested, and it is a misconception created by the tax evading cigarette manufacturers.
The year 2017 saw an unprecedented enforcement on non-tax paid cigarettes that led to the confiscation of more than 1.62 billion cigarette sticks. In the year 2018, this confiscation reduced to 645 million and as soon the government stepped in, this confiscation was reduced to a mere 2.5 million cigarettes.
Removal of this adjustable FED of Rs 300 per kg on tobacco will lead the sector to once again being undocumented and increase tax evasion. It seems as if the Prime Minister's dream of increasing taxes will be reduced to ashes by none other than his own team members.