FBR rejects Senate’s body suggestion to remove Tier-III on tobacco industry

ISLAMABAD: The Federal Board of Revenue (FBR) has rejected the recommendations of the senate body to remove the Tier-III on cigarettes industry in Pakistan.

These recommendations were received from the special committee of the senate formed to investigate causes behind a massive decline in tax collection of the tobacco sector.

According to the senate’s inquiry report, the panel had recommended that the Tier-III taxation system on cigarettes should be removed while the two-tier system should be reverted back. It suggested that the tax department to synthetically increase federal excise duty (FED) on cigarettes every year to comply with the WHO Framework Convention on Tobacco Control rules and to increase the government’s revenue.

It also recommended that a comprehensive strategy should be devised to stop the smuggling of international brands, production of non-duty paid and counterfeit cigarettes in the country.

The stakeholders, including Pakistan National Heart Association (PANAH), tobacco growers, multinational companies, local manufacturers of cigarette, ministries of commerce, national health services and regulations and commercial dealers should be taken on board by the FBR while revising the taxation of tobacco sector, it added.

The Senate body suggested the FBR to immediately withdraw SRO No 1149 in order to address the problems being faced by the commercial dealers of tobacco.

The report revealed that FBR, without consulting the ministries of health, commerce and Pakistan Tobacco Board, had introduced a third-slab of FED in 2016-17 to increase the revenue. However, upon implementation, FED decreased by 50 per cent on each pack of cigarettes that came under the third-slab while the smoking rate continued to increase owing to the availability of cheaper cigarettes in the open market.

The revenue department had collected Rs 114 billion tax in 2015-16 from the tobacco industry but after the introduction of the third slab, revenue collection remained at only Rs 83 billion.

It was also learnt that sales turnover of Pakistan Tobacco Company and Philip Morris increased by 33pc while the national exchequer faced a significant loss after the introduction of the third slab.

It is pertinent to mention that a 12-member Senate special committee, after seven months of hard work, had found out the causes behind the reduction in tax collection from the cigarette industry.

Official sources in the National Health Regulations Ministry, on the condition of anonymity, said that the health ministry has recommended Rs10 per pack ‘sin tax’ on the sale of cigarettes mainly to decrease the rate of smoking in the country. However, they said FBR opposed this idea, as legislation regarding the sin tax has been facing delay ostensibly due to alleged lobbying of multinational companies.

WHO stated that around 8pc decrease in cigarette smoking rate can be achieved in low and middle-class areas by raising cigarette price by 10pc, said official sources.

The Senate committee also advocated that FBR should increase taxes on the sale of cigarette every year in line with international practices and also in the light of the health ministry’s recommendation. Furthermore, it asked the FBR to implement the global agreement so that the national exchequer could earn revenue worth billions of rupees.

Sources said that WHO had recommended several measures to increase cigarette prices, as smoking can have serious implications on human health.

Sources said that the health ministry, in a letter to the FBR chairman, had earlier asked it to immediately remove the third slab which was imposed through Finance Act 2017. “Although the ministry, in an apparent bid to save citizen’s lives, had asked to jack up the price of a cigarette packet by Rs44, the FBR instead lowered the prices allegedly due to the pressure of MNCs,” they claimed.