Tax evasion in tobacco industry: Experts surprised over claims of Mardan-based company

ISLAMABAD: Leading tax experts and tax advisors are surprised over the claims of a Mardan-based company, which offered Prime Minister Imran Khan all possible assistance for implementation of the Federal Board of Revenue (FBR)'s track and trace system.

In a letter which was sent last week to the PM Secretariat from the CEO of the said Mardan-based company offering full assistance for implementation of the FBR's track and trace system to curb tax evasion in tobacco industry.

The letter stated that the system must be accompanied by strong law enforcement through coordination among all competent agencies.

The letter comes at a time when the Sindh High Court has given a stay order to stop implementation of the T&T system.

Experts told Business Recorder, here on Monday that it is ironic that the said Mardan-based company is making such tall claims to the prime minister because it is itself involved in the highest levels of tax evasion, mainly through selling multiple cigarettes brands below the government-mandated minimum retail price of Rs 62.76.

A company, claiming of documentation through the track and trace system, is a non-compliant company itself and not only is it selling its brands below the mandated price of Rs 62.76 but also under the minimum applicable tax of Rs 44 per pack.

The company proudly owns a brand name Kisan, which is currently amongst the top five cigarette selling brands in Pakistan and it is sold under three different packaging, all of which look the same; however, the differentiation lies in each pack stating a different manufacturer, another tactic to evade tax.

Prime Minister Imran Khan, on multiple occasions, has mentioned that the top two companies that own 60 percent of the market share in tobacco industry and give 97 percent of the tax collected by the tobacco industry, while remaining 40+ companies that hold 40 percent of the share and contribute only three percent tax.

The company in their letter has declared itself as the 3rd largest player in the country, automatically, putting themselves in the category of those companies that avoid tax.

On one hand, the company talks about their brands being counterfeited, while they themselves resort to tactics such as multiple packing of the same brand that look alike but are available in the market with names of three different manufacturers.

A survey at the retail level was conducted post company's letter to the prime minister, which revealed that certain brands owned by the KTC, which include Kisan, Gold Street and Gold Street Classic were available in the market with names of three different manufacturers, which were based out of KPK and Mardan. These manufacturers included Khyber Tobacco Company (Mardan), Walton Tobacco Company (Mirpur AJ&K), National Tobacco Industries (Bhimber AJ&K), and Universal Tobacco Company and ironically, the owners of all of these tobacco companies are politically-affiliated influential members of the country.

In the letter, the CEO claims that the company is the single largest taxpayer in KPK and that the country has been for many years been plagued by tax evasion, however, experts said that the company must understand that the selling of cigarette brands below the minimum retail price comes within the scope of tax evasion too and such big claims coming from a company that openly sells its brands at less than the government mandated minimum tax of Rs44 per pack is deceptive and misleading to say the least.

The company's chief executive officer mentioned in letter that the track and trace system must be accompanied by strong law enforcement through coordination among all competent agencies.

The question arises, whether; the company itself is complying with the laws, and rules and regulations.

Copyright Business Recorder, 2021