Peshawar High Court halts reduction in taxes on cigarettes

Published: December 27, 2017
Claim cigarette manufacturers misled govt on sales figures. PHOTO: FILE

Claim cigarette manufacturers misled govt on sales figures. PHOTO: FILE

PESHAWAR: The Peshawar High Court on Tuesday issued a stay order against the federal government’s decision to reduce taxes on tobacco products and directed the respondents to submit their response in the case.

The lawsuit was filed by Hameed Khan, a resident of Chota Lahore, Swabi through his counsel Babar Khan Yousafzai who argued in the court that the reduction in taxes would make tobacco products cheap in the country and create health hazards.

It would also result in the closure of local tobacco companies, he said.

“Some 3,000 employees have lost their jobs over the last four months due to closure of some tobacco units,” the petitioner argued. “They have not taken the stakeholders on board before introducing the third tier of taxation through the Statutory Regulatory Order (SRO).”

The court accepted his petition for hearing, issued a stay order against new taxation rules for the tobacco industry and directed the respondents to submit their replies.

Aiming to combat massive duty evasion and illicit trade in cigarettes, the Federal Board of Revenue (FBR) issued the SRO in June to introduce a third tier in the taxation structure of the tobacco industry. The decision, the petitioner feared, would lead to a reduction in cigarette prices and increase demand.

Price cut may increase smoking, warns ministry  

The plaintiff asked the PHC to issue an order for revoking the recent SRO and apply tax at the rate of Rs33.4 per pack.

“The introduction of the third tier, which has incomplete restriction and minimum pricing, has resulted in almost 33% reduction in tax collection,” said the petitioner. He added that the low tax coupled with a two-layer system has already made cigarette prices lowest in Pakistan within the South Asian region and now the introduction of the third tier will further reduce prices and lead to a massive increase in consumption.

The petitioner argued that there are ulterior motives behind the tax decision, accusing multinational companies of lobbying to secure their interests.

Giving the example of Australian government, he said it has announced an increase of 12.5% in taxes on tobacco every year from 2017-2020 which will push up cigarette prices by A$45 per pack.

“But in Pakistan, with the connivance of multinational companies, cigarette prices have been reduced for ulterior motives,” the petitioner claimed, terming the argument that the move would reduce illegal trade of cigarettes a ‘lame excuse’.

“Pakistan is the only country where taxes on high saleable brands have been reduced by 33.3%,” he argued. “This is also a breach of the World Health Organization’s convention on tobacco control.”

The plaintiff claimed that with the introduction of the third tier of taxation, multinationals are now able to sell cigarettes cheaply and increase sales, putting lives of millions at risk.

“High prices are the only way to counter cigarette consumption in the world,” the petitioner told the court. “But in Pakistan, multinationals are given a free hand to reduce prices while benefitting from lower taxation.”

The respondents in the case are government of Pakistan, through the finance secretary, FBR, Ministry of Justice and Federal Minister of Health Services. The PHC also directed the respondents to submit their reply before January 18 next year.

Published in The Express Tribune, December 27h, 2017.

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