Pakistan: Leading MNC Cigarette Unit: Alarming 64 Percent Decrease in Declared Tax in Fiscal Year 2011

Source from:  (Karachi, Pakistan) Business Recorder (pk)  01/14/2013

Directorate General of Intelligence and Investigation Inland Revenue (IR) Federal Board of Revenue has started a thorough analysis of tax-related data of a leading multinational cigarette manufacturing company after it shows alarming decrease of 64 percent in payment of income tax in 2010-11 against 2011-12.

Sources told Business Recorder on Thursday that the directorate has analysed the income tax data given by the cigarette manufacturing companies. There is a major decrease of 64 percent in declared income tax during 2010-11 when compared with 2011-12. There is a negligible decrease in payment of income tax by cigarette units except this big multinational company during the period. This top company has shown exceptional decrease in payment of income tax despite increase in payment of sales tax and federal excise duty (FED) during Tax Year 2011 and Tax Year 2012. The agency is investigating reasons behind such major fall in income tax by the said multinational cigarette manufacturing giant. Apparently, the reason for decrease in payment of income tax could be setting up of new plant where huge depreciation has been claimed under Income Tax Ordinance 2001. In case of deprecation, the percentage of income tax is being decreased. However, the investigation would cover all aspects on the direct taxes side.
 
In this case, there is no decrease in turnover of the multinational company, but whey there is sudden decline in payment of income tax by the said company, official maintained. Sources said that it is strange to note that the declared income tax return by the multinational cigarette manufacturing company is showing persistent decline in payment of income tax during the period under review.
 
The agency would also investigate whether there is any mis-declaration or under-declaration by the company in the declared income tax returns. In view of major decrease in payment of income tax, directorate of intelligence IR would thoroughly scrutinise data of the multinational company to reach at a logical conclusion.
 
The agency has also analysed import data of cigarette paper and acetate tow - two raw materials consumed in the local market for manufacturing in cigarettes. These inputs are exclusively used in the manufacture of cigarettes. The directorate of intelligence IR has analysed the import data during July 2011 to January 8, 2013 to check unauthorised cigarette manufacturers. The cigarette paper and acetate tow have been imported and subsequently supplied for the manufacturing of non-duty paid cigarettes, causing revenue loss. The agency will identity all such cases and blacklist them for necessary action under the law. The importers have shown supply of cigarette paper and acetate tow to the un-registered manufactures. Practically, manufactures of non-duty paid cigarette or filter rods have been involved in purchasing such inputs from importers in the black market.
 
A study is being conducted by the directorate of intelligence IR to check the sale of raw tobacco in the country. The raw tobacco has been purchased from the Pakistan Tobacco Board (PTB) through a documented mechanism. The remaining purchases of raw tobacco have been made in the open market. Such raw tobacco has been used in the manufacturing of non-duty paid cigarettes. The agency is compiling two kinds of records, ie, data of PTB and purchases made from open market. The intelligence information would help the agency to know about the big purchasers of raw tobacco. It would be ascertained that who have purchased the raw tobacco from the open market for manufacturing of cigarettes. Both the records would be crossed matched and income tax details would also be checked, sources added.
 
Meanwhile, a press release of the FBR issued on Thursday says, the Anti Illicit Tobacco/Cigarette Unit working under the Inland Revenue Wing of FBR has successfully launched its wide ranged operations covering almost all segments of this evasion prone sector. In addition to enforcement activities audits have also been conducted identifying recoverable Duty/taxes over Rs 262 million.
 
During the last 6 months (July-December, 2012) of the current fiscal year, the intelligence & Investigation arm of Inland Revenue at FBR unearthed tax evasion in the cigarette manufacturing and sales. Millions of untaxed cigarettes have been confiscated and the business concerns have been sealed. The confiscated cigarettes include both locally manufacturing and foreign brands. The last factory raided was M/s C.M Tobacco located in Mid Ranjha Sargodha, where 1,100,000 cigarettes were seized. The value of the cigarettes seized, on which duty has not been paid, is Rs, 11, 57,200. The machinery of M/s CM Tobacco has also been sealed.
 
In addition to the local cigarettes, details of foreign brands of cigarettes, seized in the last 6 month is as under: In order to raise awareness-level of taxpayers in the cigarette industry, an awareness campaign was also organised by FBR's Intelligence and Investigation Directorate. The campaign was focused towards provision of information to Retailers/Dealers/Wholesalers through FBR's web portal. The campaign also used print and electronic media, and notices to wholesalers/retailers of cigarettes. The FBR is actively pursuing tax evasion cases in cigarettes, batteries, real estate and other suspected sectors, it added. Enditem