The documented cigarette industry has strongly opposed Federal Board of Revenue (FBR) proposal to reduce federal excise duty from Re 1 to Re 0. 30 per filter rod of cigarettes in the upcoming budget for 2011-12.
It is learnt that on the recommendations of the Directorate General of Customs Intelligence, adjustable federal excise duty @ Re 1 per filter rod was imposed by FBR through Finance Act, 2010 to increase the cost of manufacturing non-duty paid and counterfeit cigarettes. On recommendation of the Task Force for cigarette industry, the imposition of FED at the rate of Rs 1 per filter rod has increased the cost of manufacturing non-duty paid/counterfeit cigarette by Rs 0.16 per cigarette because if non-compliant units purchase filter rods through un-registered persons they would not be able to adjust the FED paid on filter rods, whereas, being adjustable, FED on filter rods has no impact on the cost of duty-paid cigarettes.
Sources said that the FBR had imposed federal excise duty at the rate of Rs 1 per filter rod on cigarettes which is adjustable, with a view to realising revenue on sale of filter rods from unregistered and illicit manufacturers of cigarettes and to document the economy. Not only this, the Board had also made it binding on the cigarette manufacturers to compile comprehensive production and sales data of filter rods to eliminate federal excise duty evasion.
Sources said that the move had been widely hailed by the cigarette manufacturers in the tax net as it had placed a permanent check on whether the filter rod manufacturers were accurately maintaining their sales data. The tax leakages in the cigarette manufacturing industry had been particularly plugged considerably after the cigarette manufacturers were also called upon to provide data, including raw material imported/purchased, number of filter rods manufactured, total number of filter rods available for consumption in cigarette manufacturing, filter rods sold in market, FED on filter rods sold and other information specified in the concerned Registers.
However, according to sources, the latest proposal by the FBR to slash the FED on filter rods is causing a great concern among the legitimate cigarette industry. Apparently, the proposal has been moved by the informal cigarette industry which is contributing anything in the form of sales tax and federal excise duty to the national exchequer.
In case the informal cigarette industry is given this needless cushion and leverage, it may lead to revenue loss to the FBR besides contributing to an unnecessary heartburn among the legitimate cigarette industry which regularly pays taxes, sources added.
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