The sale of tobacco to tax-evading cigarette manufacturers has shown an increase in the domestic market, which caused delayed in payments to the farmers and huge revenue loss to the Federal Board of Revenue (FBR) in the form of unpaid amount of Sales Tax/Federal Excise Duty (FED).
Industry sources said on Wednesday that Tobacco Farming is a source of employment for nearly 75,000 farmers in Pakistan and more than 245,000 people derive their livelihoods from cultivating Tobacco. Pakistan Tobacco Board (PTB) enjoys the mandate to regulate the production and marketing of this crop. Fair trade and welfare of the farming community is therefore critical to sustainability of a stable supply.
As the regulatory watchdog for Tobacco Cultivation, the PTB has developed a sound infrastructure to promote justice and fair-play in transactions amongst farmers, manufacturers and dealers. This five-step regulatory system aims at protecting the interests of growers, regulating dealers, stabilising price fluctuations, and ensuring availability of quantity and quality of crop required by the cigarette manufacturers. All aspects of the supply chain are regulated to ensure that the system is free from exploitation.
PTB has most effectively helped regulate the process for the legitimate tax-paying industry; however, as per latest the government estimates, the total Tobacco Industry declined whereas quantum of Tobacco crop production remains more or less the same. This shows that sales to tax-evading cigarette manufacturers have been increasing through the black market. The question arises how these duty evading players are bypassing the stringent controls to unravel the work being done by the body to ensure farmer interests, sources added.
Pakistan Tobacco Board has put in place five key mechanisms for protection of farmers welfare like annual demand forecasting, minimum support price, no price decrease, mandatory purchase of surplus crop by manufacturers and timely farmer payments.
Tobacco Buying Cycle begins with the process of annual demand forecasting. Rule 3 of Tobacco Marketing Control Rules, 1993 issued under Martial Law Order 487 of 1985, binds all cigarette manufacturers to indicate by 21st day of October of each year their requirements of crop for the next year. This date is as per the law as it falls before farmers commence cultivation of Tobacco Crop. Before farmers decide to start cultivating Tobacco crop in winter, they are made fully aware of crop requirement for the next year. Regulations also obligate cigarette manufacturers to purchase all these indicated quantities irrespective of any changed circumstances at the time purchases commence in summer of next year, sources maintained.
The tax-evading outfits rarely participate in the exercise diligently so as to avoid records of demand that could later be traced back for tax collection purposes. As per PTB bulletin, 18 companies bought tobacco however as per research estimates by Nielsen, more than 45 companies are manufacturing cigarettes in the country.
Secondly, Under Section 8 of PTB Ordinance 1968, a Minimum Support Price for tobacco crop is fixed annually by Government of Pakistan. This price announcement helps farmers to choose whether to grow tobacco crop or not, as they can easily calculate their expected return on investment from the price announced. This gives a guarantee to farmers that even in case of surplus situation the prices will not fall below the fixed floor price.
Thirdly, a unique protection that is available only to tobacco farmers, Clause 4 of Martial Law Order 487 of 1985 provides that 'the weighted average price of tobacco, for the crop of any year to be paid by the tobacco company to the tobacco company growers shall not be lower than the weighted average price paid to them for the crop of the immediately preceding year.'
Fourth, cigarette manufacturers are required to buy even the surplus crop, over and above their requirements indicated to PTB the previous year. Rule No 8 of Tobacco Marketing Control Rules, 1993 issued under Martial Law Order 487 of 1985, states that 'no tobacco company or tobacco dealer shall close its purchase depots or business premises till such time it has purchased its full targeted demand of various types of tobacco.
Moreover, tobacco farmers get prompt payments for their crop because of the efficient purchasing system in place. During 2013 alone, within a short period of 8 to 10 weeks, tobacco industry contributed approximately Rs 15 Billion to national economy through its purchase of tobacco crop from thousands of farmers. As these payments to farmers are made through formal banking system, unlike with local tax evading outfits, this also contributes to the development of banking sector in the relevant areas.
Research, based on a sample of hundreds of farmers from all over the country reveals that the price of tobacco grew by 110% between 2008 and 2013 alone. This is primarily why 80% of the interviewed farmers said that tobacco growing is more profitable as compared to other crops as it fulfils their financial requirements better if grown in place of other crops. Tobacco profitability coupled with the fact that tobacco farmers get 27% more assistance and advice from the legitimate tax paying industry as compared to farmers of other crops, makes it the obvious choice of crop.
While the PTB has put in place many mechanisms to ensure a level playing field, more effort is required on documentation of tobacco crop purchases, as already envisaged by law as it will help curtail manufacturing of illicit cigarettes in Pakistan and also increase Government revenue generation from the cigarette industry. Currently the local tax-evading segment purchases from farmers through transactions that are many times not protected by PTB's provisions, resulting in revenue loss. While, commendable work has been done in regulating the legitimate industry, it is now time that PTB works to protect the local farmer community from falling prey to dealing with the growing black, tax-evading cigarette market, sources added.
Comments
Comments are closed.