A leading cigarette manufacturing company has informed the Federal Board of Revenue (FBR) that substantial increase in prices of different brands of cigarettes would be instrumental in increase of federal excise duty collection, as specified in the relevant notification.
A senior government official told Business Recorder here on Saturday that FBR Member Inland Revenue Shahid Hussain Asad and other tax officials recently convened a meeting with a top cigarette manufacturing company at the FBR House. During the meeting, the company informed the tax authorities that the price increase is one of the effective ways of collecting more excise duty on cigarettes.
The prices of cigarettes are comparatively low as compared of the same brands in developed countries. This requires a major increase in the prices of various brands of cigarettes. With substantial increase in the prices of cigarettes the excise duty collection from different brands of cigarettes will go up immensely. The rate of the excise duty would increase in proportion with the increase in prices of the cigarettes.
The official said that the cigarette manufacturer also informed the FBR about the volume of smuggled and counterfeit cigarettes in the country. According to the estimates of one cigarette manufacturer, approximately 18.5 to 20 percent of the market share has been captured by smuggled and counterfeit cigarettes. This means that the annual share of the counterfeit market of cigarettes in Pakistan is between 18.5 and 20 percent. The share of smuggled and counterfeit cigarettes could be reduced by the FBR by taking anti-smuggling measures and plugging the loopholes. At the same time, the FBR has to conduct raids on the units involved in manufacturing of counterfeit products. In this way, the FBR can close such factories engaged in the manufacturing of fake cigarettes in different parts of the country.
The official said that the unit has submitted the profiles of the company with information about the manufacturing processes of the unit and its contribution in the national exchequer. When contacted, a tax expert said that the increase in the prices of cigarettes would only increase profitability of the company. The increase in the price of cigarettes has no direct linkage with the increase in the rate of the federal excise duty of the cigarettes.
The FBR has to increase the incidence of the excise duty on the cigarettes as per relevant excise duty notification. The only way to increase revenue collection from this item is to raise the incidence of the excise duty of various brands of cigarettes. How a cigarette manufacturing company can talk about the price increase with the FBR which is not the competent forum to increase prices of the cigarettes?
The tax expert further said that if the cigarette manufacturer would increase price of any brand of cigarette, there is no guarantee that the incidence of the excise duty would also be on the same brand. However, the profitability of the cigarette manufacturer would definitely increase due to increase in the price of the cigarettes.
To meet expenditures, the manufacturers increase prices which have nothing to do with the excise duty regime. Under the treaty signed by leading cigarette manufacturing companies under Tobacco Control Cell, it is necessary for the cigarette manufacturers to increase the rate of the excise duty.
Experts added that it is the right of the cigarette manufacturers to increase the price of the commodities, but there is no relevance to take up this issue with the tax authorities. If there is one percent increase in the rate of the excise duty on cigarettes, the incidence of one percent would directly go to the national exchequer.
However, raise in prices of various brands of cigarettes would not automatically increase excise duty on this item till the FED has been directly raised on the cigarettes as per slabs defined in the relevant Excise SRO of the FBR. Under the relevant notification, the FBR has to increase the excise duty of the retail price on all brands of cigarettes.
The argument of the cigarette manufacturers that the smuggled cigarettes of their brands have captured huge market in Pakistan also does not seem to be justified. The smuggled brands of the cigarettes are of the same companies which are operating in Pakistan. The smuggled brands of foreign companies available in the country are the same brands which are manufactured by the same local companies.
These leading cigarette manufacturing companies can advise their principal companies aboard to restrict exports to Pakistan. The local manufacturers can further advise their principals to keep a check on the production of brands which are frequently smuggled into the country. As foreign smuggled brands belong to the same company, it is strange how such a huge quantity (20 percent of the total market) of same brands is coming into the country without any check, restriction or system, the experts added.
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