T&T fails to curb illicit cigarettes
The surge in excise duty in February 2023 has led to an exponential increase in smuggled and counterfeit cigarettes. photo: reuTERS
Despite one year passing since the implementation of the Track and Trace (T&T) regime in the tobacco industry, the adoption by illicit cigarette manufacturers remains far from successful. Only a few companies have fully implemented the T&T system in their operations, while others have merely signed agreements but failed to implement it effectively. Lack of enforcement, implementation delays, and court stay orders have all contributed to the failure in achieving tax collection targets from the tobacco industry and controlling the illicit cigarette trade.
Cigarette industry officials point out that legitimate players, such as Pakistan Tobacco Company and Philip Morris, have dutifully paid billions for tax stamps to comply with government directives. However, there seems to be a lack of data reconciliation to monitor tax evasion by illicit players or to address the market exploitation caused by the illegal production and supply of cigarette brands without T&T stamps.
Serious concerns arise about the current status of the T&T system in the tobacco industry as cigarette packs without stamps are openly sold without any checks and balances. This raises questions about the performance of the Federal Board of Revenue (FBR) and other relevant institutions in utilising track and trace data for monitoring the cigarette market and enhancing tax collection to curb the illicit trade.
Experts emphasise the importance of the FBR sharing data on tobacco purchases, cigarette production, and tax returns by all manufacturers publicly. The FBR should thoroughly analyse the processed tobacco at Green Leaf Threshing (GLT) units, the adjustable Federal Excise Duty (FED) collected from cigarette manufacturers, and how much of this FED was adjusted against the final liability. Correlation between GLT processing and leaf buying should also be investigated.
Despite government statements on multiple occasions to control the illicit cigarette trade, the market continues to witness the sale of a large quantity of cigarette packets without tax stamps. The surge in excise duty in February 2023 has led to an exponential increase in smuggled and counterfeit cigarettes.
Tax experts have urged the FBR to carry out coordinated enforcement activities against the openly available illicit cigarettes in the market and ensure strict punishment for wrongdoers. Merely confiscating cigarette packs will not be enough to control the illicit trade; a strong and decisive action against culprits is necessary.
Earlier, in February 2023, the tobacco industry faced an unprecedented increase in FED, leaving legitimate players vulnerable to mafia during tobacco leaf purchasing. If the lack of enforcement persists, legitimate cigarette manufacturers may face serious consequences, leading to the closure of legal businesses in Pakistan, further exacerbating the country’s economic challenges.
Cigarette industry officials emphasise that strict implementation of the T&T system across the tobacco sector, coupled with effective utilisation of monitoring data for better tax collection, and strong enforcement against wrongdoers, are crucial to achieving tax collection targets from the tobacco industry.
Published in The Express Tribune, July 22nd, 2023.
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