Pakistan: Proposed Changes in Cigarette Excise Tax to Render Farmers Jobless in KP

Source from:  Pakistan Daily Times 02/27/2013

Thousands of tobacco farmers will go out of jobs in already suffering Khyber Pakhtunkhwa (KPK) regions if the proposed changes in cigarette excise tax are actually executed by Federal Board of Revenue (FBR).

Cigarette industry buys nearly 70-80 million kilogrammes (kg) of green crops from tobacco farmers every year, generating income of Rs 12-13 billon for these farmers. They have already sowed their crops for 2013 season and Pakistan Tobacco Board (PTB) has already announced minimum price to be paid to farmers.

If the FBR proposals goes through the tax-paying cigarette manufacturers would not be able to or need to buy the crop already sowed by the farmers in the field. The farmers who sowed crop would be left high and dry, as demand for their crop would decline drastically.

The reason is simple. As a result of drastic tax increases, the price of duty paid cigarette is expected to increase and the minimum price of a duty paid cigarette will go upto 50 rupees.

This will obviously negatively impact cigarette demand. With reduced demand the manufacturers would need much smaller quantities of crop and as a result the tobacco farmers would not be able to sell their crops.

Hence a more in depth and serious analysis of these proposed changes were required. If done hurriedly, this may not only cost national exchequer billions of rupees in lost revenue, but will also create unemployment and unrest farmers.

Revenue from cigarette sector is going to decline and not increase due to the proposed changes. The detailed analysis required to understand the elasticises of demand in different segments, the different excise regimes and tiers in different countries and implications of different options ahs not been thoroughly worked out.

The current FBR proposals, presenting a two-tier excise structure with staggering tax hike within the lower tier catering to bulk of the existing industry volume is likely to create a serious dent in demand of such brands while promoting purchase of cheaper alternatives like Pine and other smuggled and non-duty paid brands.

Rather than plugging the leakages in existing taxation regime and further broadening the tax base, FBR authorities are instead going for the easiest course of burdening the existing taxpayers with enhanced Federal Excise Duty without considering the adverse impact on the economy and revenue projections.

Moreover there are a plethora of laws governing the industry ranging from FED Act and Customs Act to regulations on retail and printing of packets, which are blatantly violated by the illicit cigarette players.

Any improvement in enforcement of these laws are likely to yield a great returns as the illicit cigarette sector is estimated to cost more than Rs 20 billion to government exchequer every year. Enditem