The Directorate General Intelligence and Investigation Inland Revenue (IR) Federal Board of Revenue (FBR) has found that tax evasion in cigarette industry is much higher than the estimated figure of Rs8-10 billion, worked out by a multinational cigarette manufacturing giant.
Officials told Business Recorder on Sunday that in less than a year, the directorate had gathered data on various tax evasion 'techniques' employed by cigarette manufacturers. The agency has simultaneously worked on all fronts within its powers/jurisdictions and controlled massive evasion of sales tax and federal excise duty by domestic cigarettes producers; importers of smuggled cigarettes; counterfeit cigarettes and supply of tobacco to unauthorised units etc. At the same time, audit of the cigarette manufactures and Green Leaf Threshing (GLT) units have also being conducted to plug the loopholes in the evasion-prone sector. Thus, directorate has been able to check all areas like counterfeit production, non-payment of sales tax/FED and smuggled non-duty paid cigarettes.
The level of tax evasion is evident from the fact that one of the small units has committed tax evasion of Rs235,108,599 which is less than the actual tax payment of all local manufacturers located in Khyber Pakhtunkhwa. The directorate has concluded that the extent of tax evasion in cigarette industry is extraordinarily higher as compared to merely Rs8-10 billion claimed by a multinational company. The quantum of evasion in cigarette industry has never been calculated by any tax department or FBR's directorate and for the first time the directorate has calculated the volume of tax evasion in the sector based on its one year hectic efforts to plug in the loopholes. The FBR was depending on the figure worked out by a multination cigarette manufacturer which has been rejected by the directorate. The real quantum of tax evasion in the sector is very high.
In view of performance of the KPK-based dedicated cell of the directorate of intelligence IR against cigarettes, the FBR may constitute dedicated Units in other potential areas of cement, steel, sugar, beverage and other key sectors.
Prior to the establishment of the directorate, no tax department, directorate or agency has taken any action against the cigarette manufactures. The directorate/agency which was empowered to take action against cigarette industry failed to proceed against units involved in massive evasion of sales tax and the FED, encouraging illegal business across the country. Even smuggling of imported cigarettes increased in the past. Since the establishment of directorate, this agency has shown remarkable performance by taking action in all areas to control illicit trade of cigarettes. Finance Minister had congratulated the team of the directorate of intelligence IR for showing such a remarkable performance within the industry.
Latest data showed that the agency seized 480,000 cigarettes sticks of foreign origin/counterfeit cigarette including Pine; Enjoy; Hi-Lite; Marlboro and L&M during February and June 30 this year. The value of these non-duty paid cigarettes was Rs762,000 involving revenue of Rs696,468.
Summary of enforcement activities of illicit trade in cigarettes showed that the directorate has seized 890,000 cigarettes with a value of Rs1,385,000 since July 1 this year. The amount of revenue involved was Rs1,265,890 during the period. The foreign origin/counterfeit seized brands included Pine, Hi-Lite, Marlboro, Stanford, Oris Slim and Red & White (counterfeit).
The summary of enforcement activities in respect of illicit trade in cigarette/processed tobacco (domestic manufacturers) for the period February and June 30 this year showed that in case of M/s International Cigarette Industries (pvt) Ltd, quantity of cigarettes/tobacco seized 6.0 (million), value of non-duty paid cigarettes (seized) Rs 10,347,360, revenue involved Rs5,051,360, revenue recovered Rs5,051,360; M/s Imperial Cigarettes Industries, quantity of cigarettes/tobacco seized 3.3 (million), value of non-duty paid cigarettes (seized) Rs2,901,000, revenue involved Rs2,276,160, revenue recovered under litigation before CIT (appeal); M/s Khyber Tobacco Co Ltd, quantity of cigarettes/tobacco seized 9474 kgs tobacco, value of non-duty paid cigarettes (seized) Rs1,515,840.00, revenue involved Rs473,700.00, revenue recovered Rs473,700.00 and in case of M/s Souvenir Tobacco Co. quantity of cigarettes/tobacco seized 1000 kilograms of tobacco, value of non-duty paid cigarettes (seized) Rs160,000, revenue involved Rs100,000 and revenue recovered of Rs100,000.
The summary of enforcement activities in respect of illicit trade in cigarette/processed tobacco (domestic manufacturers) for the period since July 1 this year showed that in case of M/s. C.M. Tobacco Mid Ranjha Sargodha, quantity of cigarettes/tobacco seized 1.1 (million), value of non-duty paid cigarettes (seized) Rs1,157,200, Revenue involved Rs274,725, and revenue recovered Rs274,725.
As a result of audit/investigation of cigarette manufactures during February and June 30 this year showed that in case of M/s.Khyber Tobacco Co. Mardan, revenue detected Rs2,078,220 and present status of the case is that the amount has been paid by the unit; TMC-II Mardan (GLT), revenue detected Rs2,787,363, present status is case pending with CIT (Appeals) and Unitob (pvt) Ltd, Swabi (GLT), revenue detected Rs 18,173,553, present status is that the matter is under adjudication.
As a result of audit/investigation of cigarette manufactures since July 1 this year in case of Unit M/s Salim Cigarette Ind. Mardan, revenue detected Rs23,707,945, the current status of the case is that the matter is under adjudication; M/s. Universal Tobacco Mardan, revenue detected Rs235,108,899, present status of the case is that the matter is under adjudication and M/s. International Cigarette Ind. Swabi, revenue detected Rs4,521,041 and present status of the case is that the observation has been communicated to the unit.
Two importers of cigarette paper and acetate tow namely M/s.Raja Enterprises Peshawar, M/s Sana Enterprises Peshawar were selected for audit. Due to non-availability at declared addresses their cases have been recommended for blacklisting to Regional Tax Office (RTO), Peshawar, data disclosed.
The quantum of evasion in cigarette industry is evident from the contravention report of the directorate. According to the report, on basis of credible information that counterfeit/non-duty paid local brand cigarettes are liable to confiscation under Section 27 of the Federal Excise Act, 2005, illegally stored by M/s Universal Tobacco Co (Pvt) Ltd / M/s Saleem Cigarettes Ind. Mardan at House No 299; Riwaz Garden Lahore, the premises was duly searched by the officers of the directorate in the presence of witnesses and In-charge Police Chowki, Riwaz Garden, Lahore in terms of Section 25 of the Federal Excise Act, 2005 after obtaining search Warrant from the Judicial Magistrate, search led to the recovery of 40 packets of 20 cig each Ranger brand 20 packets of 20 cig each Gold Flake Cig and private record/truck bilties etc indicating past supplies of cigarettes of Ranger, Redcut and Cafe brands. Scrutiny of private record showed that during the period April 2009 to October 2009, February 2010 to May 2010, June 7 2011 to June 09, 2011 and August 2011 to January 2012 M/s Universal Tobacco Co (Pvt) Ltd Mardan have supplied 17,908 cartons of Ranger, Redcut and Cafe brand cigarettes to various distributors/wholesaler and retailers of Okara, Kasur, Pakpattan, Sahiwal, Faisalabad, Jhang, Sheikhpura and Lahore districts involving federal excise duty and sales tax amounting to Rs130,548,737.
During the course of investigation, various bank accounts were approached, particularly real owner/Director of the Company and General Manager/ Marketing Manager of the Company and receipts of Rs195,594,549 on account of sale proceeds of unaccounted for cigarettes were noticed. Taking Rs195,594,549 as receipts / sale proceeds of un-accounted for cigarettes of the said Company and on work back method as explained in the contravention report Rs 235,108,599/- has been ascertained as evaded Federal Excise Duty and Sales Tax by the management of M/s Universal Tobacco Company (Pvt) Ltd, Mardan.
The agency has, therefore, in association with deputed staff of Directorate, Peshawar/Islamabad, made out a contravention case against M/s Universal Tobacco Company (Pvt) Ltd, Mardan involving federal excise duty and sales tax amounting to Rs235,108,599.
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