FBR to implement tax stamps on cigarette packs

Country losing revenue due to illicit trade in tobacco sector

LAHORE: The Federal Board of Revenue (FBR) is taking the initiative to implement tax stamps with the aim of curtailing tax evasion in the cigarette industry.

In 2014, illicit cigarette sector made up 23.7% of the market - a number that continues to alarm legitimate players in the industry who are left to face the increasing tax burden. The illicit sector includes smuggled cigarettes, counterfeit products, and Local Tax Evaded (LTE) cigarettes.

In a research report compiled by Nielsen Pakistan, LTE cigarettes cost the national exchequer around Rs25 billion in lost revenues a year.

LTE cigarette brands are priced as low as Rs15, which is indicative of clear tax evasion given that the minimum tax payable per pack is around Rs36, the report said.

With Pakistan taking the step towards implementing tax stamps, it will be joining the ranks of the Philippines and Malaysia, who have successfully introduced different technology to curtail their respective illicit trade issues, the report stated.

Since 2015, the Philippines’ Bureau of Internal Revenue (BIR) has implemented the Internal Revenue Stamps Integrated System (IRSIS), a track-and-trace system deployed with the sole focus of limiting illicit trade.

LTE cigarettes, unlike smuggled cigarettes, usually comply with all the local printing requirements, making it extremely difficult to differentiate them from the cigarettes made by the legitimate players in the industry. The introduction of such a visual marker in Pakistan would allow law enforcement officers to monitor the trade of LTE cigarettes, the report stated.

Pakistan already has the service provider and technology to implement such tax stamps. Like the Philippines’ APO Production Unit, the Pakistan Security Printing Corporation (PSPC) has the authority to print revenue stamps and tobacco excise labels under the Supply and Distribution of Stamps rule 1954. It already has a portfolio of printing banknotes, machine readable passports/visa, government cheques and other high quality anti-counterfeiting products making it a front runner to print the tax stamps, the report said.

Published in The Express Tribune, June 26^th, 2016.

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