The Federal Board of Revenue may suffer a huge revenue loss of Rs 5.02 billion during February-June 2013 following delay in merger of three existing slabs of Federal Excise Duty (FED) on cigarettes into two slabs. Sources told Business Recorder here on Saturday that the Board had worked out revenue collection of Rs 5.02 billion during February-June 2013 from revised slabs of the Federal Excise Duty (FED) on cigarettes.
Despite strong resistance of two multi-national cigarette companies, the FBR finalised the proposal. However, the FBR is unable to amend the Federal Excise Act, 2005 through a Statutory Regulatory Order (SRO). Finance Act can amend the relevant Schedule of the Federal Excise Act, 2005.
According to the FBR's calculations, the Board had projected extra revenue of Rs 5.02 billion for the period February-June 2013. The calculations have been made on number of cigarette packets sold in the existing three slabs. The FBR calculated that revenue of Rs 0.65 billion would be generated from existing lower slab of cigarettes during the period. The FBR said that Rs 0.65 billion have been calculated on the basis of 150 million packets of cigarettes being sold in five months (February-June 2013). The minimum increase in FED/pack with current retail price comes to Rs 4.32, the FBR working said.
The middle slab of cigarettes would generate extra revenue of Rs 4.37 billion during the period. The FBR has worked out that revenue of Rs 4.37 billion would be generated from existing middle slab of cigarettes during February-June 2013. The FBR said that Rs 4.37 billion has been calculated on the basis of 1100 million packets of cigarettes being sold in five months (February-June 2013). The minimum increase in FED/pack with current retail price comes to Rs 3.97 under middle slab of cigarettes.
As per FBR's working on revised slabs, Board has calculated zero FED from the upper slab after merger of three into two slabs of FED on cigarettes. The 150 million packets of cigarettes being sold in the upper slab were incorporated in the middle slab under board new working on revised slabs of the Federal Excise Duty (FED). Sources said the FBR has been unable to obtain approval of the Ministry of Finance for introducing a simple FED structure on cigarettes to generate additional revenue during remaining period of current fiscal year.
The government has taken other taxation measures to generate revenue except increase in the rate of the FED on cigarettes. Among all taxation proposals, increase in the FED on cigarettes was the major measure in the second half of 2012-13. However, the FBR was unable to convince the economic managers and cannot obtain due approval of the Ministry of Finance for revising the FED structure on cigarettes.
The FBR has already has informed the Ministry of Finance that multinational companies have fixed prices of cigarettes lowest in the world, which resulted in low collection of revenue from cigarette industry. The multinational companies have fixed prices of cigarettes lowest in the world, which resulted in low collection of revenue from cigarette industry.
The FBR has further conveyed to the Ministry of Finance that during 2011-12, Federal Excise Duty (FED) and Sales Tax (ST) collection from cigarette industry was Rs 53.23 billion and Rs 12.52 billion respectively, which during July-December, 2012 has reached Rs 24.15 billion and Rs 5.57 billion respectively. However, it is felt that the revenue realisation from this industry is not according to its potential.
An analysis of the current cigarette market disclosed that almost 90 percent of the market is priced at Rs 33 or less per pack of 20 cigarettes, out of which Rs 28.44 is retail price for FED purpose whereas Rs 4.56 is the amount of sales tax. Such price is almost lowest in the world, which results in low collection of revenues from this segment. It is relevant to mention that due to fair prices, countries like Sri Lanka are collecting almost equal amount of duty/taxes as collected by Pakistan whereas the population of Sri Lanka 1/10th of the size of market in Pakistan.
Moreover, the incidence of duty/tax on this segment (ie, 90 percent of the market) is 60 percent or less which is well below the international standard of 70 percent, required to be achieved by signatories of Framework Convention on Tobacco Control (FCTC) ratified under the auspices of WHO Pakistan, which is also a signatory to this convention and has to raise incidence up to 70 percent as well.
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