Fake cigarettes burning hole in govt’s coffers

Changes in tax formulae allegedly benefits counterfeiters.

ISLAMABAD:

Counterfeit cigarettes can be seen in abundance in different markets after the reduction of the Federal Excise Duty (FED) on filter rods from Re1 to 20 per cent of value. Sources in the cigarette industry revealed that the reduction of FED has facilitated the production of fake cigarette producers, as the surveillance and monitoring by the concerned authorities is already weak.

The FED on filter rods was introduced in last year’s budget.

At the rate of Re1 per filter rod on cigarettes, the duty was allowed to be adjusted and the measure was largely aimed at realising revenue on the sale of filter rods from unregistered cigarette manufacturers and to document the economy.

Additionally, the board had also set a binding condition on cigarette manufacturers to compile comprehensive production and sales data of filter rods to eliminate evasion of FED.

Tax loopholes in the cigarette manufacturing industry have been plugged up considerably since cigarette manufacturers were also called upon to provide data, including details of raw material imports and purchases, the number of filter rods manufactured, total number of filter rods available for consumption in cigarette manufacturing, filter rods sold in the market, FED on filter rods sold and other information specified in the concerned registers.

However, the latest round of pressure tactics, which comes at a time when the Federal Board of Revenue’s (FBR) upper echelon are busy finding ways to jack up dwindling government revenues using ‘innovative’ tax measures, has already caused a great deal of concern in the cigarette industry, as it feels that the move is in favour of the black market cigarette industry, which lost a chunk of its revenues which were earlier protected from the tax net.

Tight surveillance and monitoring by the FBR has already irked counterfeit cigarette manufacturers, who find themselves on the back foot following recent tax evasion incidents, with two companies, Paramount International and Filters Pakistan were found guilty of tax evasion and importing acetate tow for the production of cigarette filter rods.





Published in The Express Tribune, July 20^th, 2011.