Experts call for taxing tobacco at threshing stage

Experts have urged the government to eliminate tax evasion in the tobacco sector, which is not only damaging the economy but is also undermining the tobacco control initiatives.

In a report, they said that the Federal Board of Revenue (FBR) managed to collect Rs135 billion in taxes from the tobacco sector during fiscal year 2020-21, which was Rs18 billion higher than the collection made in the previous fiscal year.

In the federal budget for 2021-22, the target for tax collection from the tobacco sector has been set at Rs155 billion, which is Rs20 billion higher than the collection in FY21, revealed the report released by Ipsos on Monday.

“It is pertinent to mention that two companies that bought around 71% of tobacco crop (33 million kg out of 45.6 million kg) in 2020, contributed 98% to the total tax net while 48 companies that purchased the remaining 29% just added 2% to the revenue collection,” it said.

The report highlighted that taxes worth Rs80 billion were being evaded by the tobacco sector in Pakistan on an annual basis. It stressed that the amount could be recovered by levying tax on all 52 cigarette manufacturing companies in line with their actual production and sales.

“There is a need to monitor the production units of companies manufacturing and selling cigarettes with a track and trace system to prevent the ongoing tax evasion in the tobacco sector,” the experts said.

Read More: Experts urge tax hike on tobacco products

Before the federal budget presentation in June 2020, the tobacco industry had proposed to the government to levy a tax on tobacco threshing instead of cigarette sales, however, the recommendation did not receive attention of the leadership.

The tobacco industry shares the demand for tobacco at the beginning of each season, which is advertised for tobacco growers. Once the crop is bought, all of it is processed through 10 green leaf threshing units in the country.

In the report, the experts believed that if tobacco could be taxed at that stage, the tax evasion in the sector could be eliminated completely.

“The monitoring of these 10 threshing plants is easier and scalable as compared to the monitoring of production and sales of more than 50 companies,” they said. “Luckily, a monitoring system for green leaf threshing plants already exists, which can be improved by using digital technologies.”

They added that SRO 1149 authorised the FBR to appoint an inland revenue officer to oversee the threshing plants, who will be liable to monitor and verify tax receipts along with tobacco processing, storage, wastage and sale to non-manufacturers.

Published in The Express Tribune, August 31^st, 2021.

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