Government’s tax target blown up in smoke

Illegal sale of cigarettes continues, causes Rs40b loss to national exchequer

ISLAMABAD: The government has lost around Rs40 billion in taxes from the cigarette industry due to increasing sales of locally-produced, and tax-evaded, cigarettes.

According to recent figures available with this scribe and documents handed over by the government at the announcement of Budget 2017-18, Pakistan has been struggling with the rise of tax-evaded cigarettes in the country.



“The tax collecting agency- Federal Board of Revenue (FBR) - has felt the drop in revenue as the amount has gone down by Rs40 billion. The original tax target was set at Rs111 billion,” officials at the FBR told The Express Tribune.

According to the proposed budget, the government, while taking note of the decrease, has set a minimum price of Rs48 per cigarette packet.

“Coupled with enforcement, this will deter local tax evaders from selling cigarettes for as low as Rs15 per pack. Local tax evaders often write the accurate retail prices on the packs, after calculating excise and sales taxes, but sell the packs well below the minimum cost of Rs43, and even lower than the recently announced minimum price of Rs48 per pack,” officials said.

For this purpose, officials said that the government has chalked out a plan to create awareness programmes, informing and educating retailers and people that it is against the law to sell any packet for less than Rs48.

“The minimum price would create deterrence at the retail level, at the distribution level and hopefully, at the manufacturing level, whereby the players involved in these illegal practices would not be able to sell at a lower price,” the official said. “Once awareness is created, enforcement will be, and always has been, key to obtaining the best results in all market dynamics.”

There will now be three slabs or tiers in the cigarette excise structure to address affordability issues that are leading to a growing smuggled market. The official said that by setting a minimum price and introducing a third tier, while increasing the rates on the first two tiers, the government will manage to deter consumers to smoke lower priced brands, and shift the demand to legally compliant cigarettes that are priced higher.



Illegal operators have been operating in the country for many years, evading regulatory and fiscal laws by manufacturing and selling low-priced cigarettes. Tax evaded cigarette segment grew to become 41% of the market, taking away a whopping 35 billion sticks from the legitimate sector over the years.

Published in The Express Tribune, June 2^nd, 2017.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.