Pakistan: Cigarette Industry: Changes in Tax Slabs May Prove Helpful

Source from:  Business Recorder  02/08/2013

The restructuring of taxation on cigarettes by withdrawing middle tier of Federal Excise Duty (FED) slab is unlikely to prove helpful in generating revenue, but could further add the woes of consumers and further proliferation of the illicit tobacco industry in the country.
 
Federal Board of Revenue (FBR) intends to restructure the taxation on cigarettes by withdrawing middle tier of FED slab to overcome the shortfall of about 30 billion in revenue during current financial year. The stakeholders are stressing need for initiating serious measure to curb the illicit tobacco industry, before policy measures can be debated to change the tax law.
 
According to one estimate, by only controlling smuggling of foreign brands, the revenue share of legal industry can jump to one billion dollar annually. Already the legal tobacco industry contributes a major share which is 37 percent of FED and 3.5 percent of total annual revenue.
 
In case of the adoption of the proposals, without accounting for the negative consequences and going for legal amendments will result in raising prices of the legal cigarette brands and creating huge space for the illegal brands which are showing a fast growing trend already. There are said to be more than 0.6 million outlets in the country where illegal brands are sold with impunity without any fear of law.
 
The changes are expected to jeopardise the livelihood of a sizable chunk of population whose sustainability depends on the tobacco industry. It will have direct distressing effect on the employment rate of Khyber Pakhtunkhwa (KP) province, particularly, the tobacco growing areas. Tobacco is the only cash crop of KP, mostly being cultivated in Buner, Swabi, Mardan, Charsada and Mansehra areas. Over 78,000 people in KP are directly associated with the tobacco business.
 
About 98 percent of tobacco is grown in KP and 78 percent of the total Virginia tobacco is grown in Swabi. About six percent tobacco is produced in Buner, 38 percent in Swabi, five percent in Mansehra, 25 percent in Mardan, and 15 percent in Charsada. Total tobacco production of the province is nearly 14 percent higher than the global average, while 22 percent higher than the national level.
 
KP province generally generates around Rs 17 billion under the head of taxes imposed on tobacco while receives a minimum share of Rs 60 million of the total revenue from the centre, and invests marginally on the welfare of the farmers. The intended changes by FBR in the taxation system will simply lead to criminalisation of the society and will boost illicit trade & consequently the underground economy with unhealthy social impact. Enditem