Alleged tax evasion of Rs 8-10 billion annually: Mardan cigarette units challenge MNCs' assessment

Challenging the tax evasion figure of Rs 8-10 billion annually by the local cigarette industry, the units of Mardan offered two leading multinational companies to purchase their assets including factories, machinery/equipment and all brands at a cost of Rs 4 billion and take over local cigarette manufacturing units in Khyber Pakhtunkhawa.
It is learnt here on Thursday that the issue came to light during a meeting of the cigarette industry at the Federal Board of Revenue (FBR) to discuss issues raised by two MNCs, cigarette manufactures from Mardan and Azad Kashmir. The officials of Directorate General of Intelligence and Investigation Customs and Directorate General of Intelligence and Investigation Inland Revenue were also present.
During the meeting, an interesting situation arose when the units from Mardan categorically said that the figure of tax evasion of Rs 8-10 billion by local manufacturers has been given after the survey conducted by a top multinational cigarette manufacturing company. The company has deliberately exaggerated the figure to defame the image of the local manufacturers among the tax authorities. The study was funded by multinational company which claimed tax evasion by the local industry to the tune of Rs 8-10 billion. There is no authentic independent research or study on the exact figures of tax evasion by local manufacturers. If the two multinational companies think that there is a huge tax evasion by the local industry, they can purchase all factories including their existing brands for Rs 4 billion and run the business for earning profits. As the figure of Rs 8-10 billion has been worked out by one of the leading multinational companies, the data has no relevance. The two multinational giants can take over all our assets for Rs 4 billion, sources quoted local units as making a offer during the meeting.
When the figure has been given by a multinational company against local companies, how can you expect that the figure would be accurate and authentic?
Sources said the representatives of the two multinational companies were mum over the offer made by Mardanwalas.
The officials of the FBR agreed that at present the tax department has no independent research study on the figure of actual tax evasion committed by the local manufacturers. There should be some reliable study to know about the exact volume of tax evasion by local industry.
The officials of the Directorate General of Intelligence IR informed the meeting that even if the figure of Rs 8-10 billion may not be realistic, still massive evasion of sales tax and federal excise duty is taking place in the local industry. The local manufacturers are merely paying Rs 500 million per annum in the form of taxes and there is a large-scale evasion of taxes in the local industry. However, the FBR officials admitted that at present there is no reliable study or research on the quantum of tax evasion in the local cigarette industry. The directorate of intelligence IR also gave a clear and loud message that if anybody thinks that we are only against the local units, it is absolutely wrong. The agency would also take action against the multinational companies based on authentic information and intelligence data, if required.
Sources added that the local units of Mardan raised another important issue that the directorate of intelligence IR is taking enforcement actions against the local units for the last few months, but what the FBR has done to stop the smuggling of imported cigarettes. The smuggled cigarettes have flooded the market and what enforcement actions has been taken by the customs department as well as directorate of intelligence Customs to check the smuggling of imported brands available in the market.
The representative of Directorate General of Intelligence and Investigation Customs was of the view that due to porous border of Afghanistan, it is not practically possible to totally eliminate smuggling of imported cigarettes. Responding to this, local manufacturers argued that if the Pak-Afghan border is porous, what has stopped the customs intelligence from taking action against the smuggled cigarettes available in the local markets. There is huge quantity of smuggled cigarettes available in all major markets of the country, but the customs department has not taken any action. The question arise that the FBR is taking action against non-duty paid cigarettes in the KPK, but doing nothing to stop the smuggling of imported cigarettes. It is not clear that why the customs intelligence is reluctant to take action against the imported cigarettes which are abundantly being soled in all cities of the country. During the tenure of enforcement action by the directorate of intelligence IR against the units of KP, the customs department has not taken any action to check the smuggling of imported cigarettes in domestic markets, sources added.