Pakistan: Cigarette Manufacturers: FBR Examining Two Major Proposals

Source from:  Business Recorder  02/26/2013

The multi-national cigarette manufacturing companies have enormous potential of over Rs 50 billion Federal Excise Duty (FED) per annum, for which a simplified FED structure to be introduced through amendment in the Federal Excise Act, 2005. A senior FBR official told Business Recorder here on Monday that the two major proposals pertaining to cigarette manufacturers are under Board's consideration.
 
Firstly, the FBR intend to introduce concept of 'Tax Stamping' on cigarettes to control smuggling and document selling of cigarettes at each and every level of supply/marketing chain. Secondly, the FBR will ensure major changes in the FED structure to improve collection from multinational cigarette companies.
 
Official explained that the 'Tax Stamping' is the most effective way of identifying smuggled/non-duty paid packets to check evasion of the Federal Excise Duty (FED) by the cigarette industry. The FBR wanted to affix quality assurance stamp on every packet of cigarettes to check illicit/counterfeit production of cigarettes.
 
He added that the cigarette manufacturers are paying less amount of the FED as compared to their actual potential. The cigarette industry has potential of at least Rs 50 billion per annum in addition to the existing amount of payment of excise duty. The FBR will abolish middle slab of the FED applicable on cigarettes and revise the remaining slabs in such a manner that the actual potential of the industry must be realised. The revision of the FED slabs is necessary to increase the revenue collection from the multinational companies.
 
When contacted, a tax expert said the FBR had done spadework on the concept of tax stamping on cigarettes during the tenure of Ex-FBR Member Sales Tax Shahid Ahmed. At that time, the FBR had analysed the concept of tax stamping in Turkey, Malaysia and Bangladesh. Tax authorities worked on the concept of 'excise duty stamps' for the cigarettes units for checking tax evasion, counterfeiting and smuggling.
 
Tax officials had also studied different international tax models for controlling excise duty evasion in cigarette industry. In Bangladesh, the concept of tax stamping and band rolling of cigarettes was successful due to support of government and political will. Tax authorities of Bangladesh did not hesitate to conduct raids on shops selling smuggled or non-duty paid cigarettes. Turkey and Malaysia are not facing problems of tax evasion, but their main concern is smuggling and counterfeiting of cigarettes. Pakistani tax officials had visited these countries to examine the operations of the cigarettes industry. It was observed that tax stamping has been fully enforced in these countries, they said.
 
Expert said that tax stamping is the most appropriate way to check the illicit trade. It is a kind of ticket, which could be pasted on each pack of cigarette. The idea is to differentiate between the duty paid and non-duty paid cigarette. Under the excise laws, the board is legally empowered to restrict the cigarette and beverage manufacturers to affix 'excise duty stamp' on each item to be sold in the market. Secondly, another option is to paste a 'tax marker' on each pack of cigarette. Tax marker is a 'dot spot' containing specialised ink. A special gun is used to paste it on cigarette pack. It is not simply a dot, as it has a special code, which could be seen through special way.
 
Thirdly, another option is to use bang rolling on cigarette packs, as the provision is available in both the sales tax and excise laws. It is a special kind of strip, which covers the whole cigarette pack. However, the project could not be implemented without the approval of the Printing Corporation of Pakistan. Fourthly, a holographic sticker could be prepared from 'fraud-proof paper' with graphic security features. The stamp, which looks like a sophisticated small size currency note, has holographic features. Just like a hologram, you can see different dimensions of the stamp, which is impossible to copy through counterfeiting. Three different types of security inks are being used in these stamps, tax expert added. Enditem