Senate body to probe Rs33b fall in revenue receipts

Low duty structure restricted revenue flow and encouraged smoking

ISLAMABAD: A special committee of the Senate will meet on Thursday to probe a Rs33-billion loss to the national exchequer following revision in tax structure for the tobacco industry.

The committee, to be headed by Senator Kalsoom Parveen, will submit a comprehensive report to the Senate after investigating a heavy decline in revenue collection from the industry. Revenue receipts fell when the Pakistan Muslim League-Nawaz (PML-N) government introduced a third tier of duty on cigarettes.

The Public Accounts Committee, in its meeting held on May 23, had also recommended a Supreme Court-led investigation on the basis of a special report prepared by the Auditor General of Pakistan on the causes of decline in tax collection from the tobacco industry.



After the unveiling of the third tier in May 2017, two major industry players shifted their famous brands to the lowest duty slab and sold cigarettes with a 50% reduction in federal excise duty, which enhanced their sales, but government revenues fell, according to the audit report.

The National Accountability Bureau (NAB) initiated probe into the conduct of the Federal Board of Revenue (FBR) and two multinational companies due to the Rs33-billion loss to the public purse.

Talking to The Express Tribune, special committee member Hidayatullah recalled that the Senate had tasked the committee with investigating the issue and it would prepare a detailed report. He was of the view that the previous government had given undue favour to cigarette manufacturing companies that caused the loss of billions of rupees to the national exchequer.

Industry sources argued that although the FBR had introduced the third duty slab to control the sale of smuggled cigarettes and discourage smoking, the illicit trade continued unabated and the smoking rate increased. They said despite the introduction of the third tier of taxation, the revenue of multinational companies increased as cigarette consumption rose while almost 10 factories closed down.

The FBR collected Rs107 billion in revenue from the tobacco industry in 2014, Rs114 billion in 2015 and Rs84 billion in 2016. It suffered a revenue loss of Rs33 billion in 2017.

Ministry of Health Secretary Captain (Retired) Zahid Saeed, in a letter sent to the FBR on July 5, 2018, recalled that the Pakistan National Heart Association had requested the prime minister to abolish the third duty slab, introduced in Finance Act 2017 and continued in 2018, as it was increasing the rate of smoking in the country.

“Tobacco use is a cause of death and around 160,100 Pakistanis are dying every year. Almost 29.3 million adults currently use tobacco in any form in the country. Moreover, the economic cost of smoking comes in at Rs143.208 billion,” he said.

As a signatory to the Framework Convention on Tobacco Control, Pakistan needs to implement such tax and price policies that help to reduce tobacco consumption.

According to the World Health Organisation (WHO), excise taxes should account for at least 70% of retail prices of tobacco products.



Prior to the federal budget for 2017-18, the secretary said, the health ministry had proposed to tax the lower slab of all cigarette brands at Rs44 per pack. However, the FBR rejected the proposal.

The proposal, if accepted, could have cut the number of smokers by 13.2% and increased government revenue by Rs39.5 billion, leading to a reduction of 0.65 million in smoking-related premature deaths.

A new slab with lower federal excise duty of Rs16 per pack was introduced in the Finance Act 2017. Consequently, prices of some brands fell from Rs75 to Rs48 per pack.

In the Finance Act 2018, the third slab was kept in place, but the duty on the three slabs was enhanced from Rs16 to Rs17.08, Rs33.40 to Rs35.52 and Rs74.80 to Rs79.40.

Published in The Express Tribune, August 9^th, 2018.

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