Proposed slabs of FED on cigarettes: MNCs' profits likely to go up substantially

A comparison of the Federal Excise Duty (FED) slabs, in case of cigarettes proposed by the Federal Board of Revenue and cigarette manufacturers, revealed that the new excise structure would substantially increase profit margins of multinational companies in 2013-14.
Sources told Business Recorder on Wednesday that the FBR has made comparison of the slabs of the FED on cigarettes as proposed by the Board and cigarette manufacturers during the budget preparation exercise. According to officials, the implementation of the FED slabs as proposed by cigarette manufactures would result in major increase in the profit margins of the cigarette companies. Moreover, the new structure would allow such companies to raise prices and increase their own profits without adding any substantial amount to revenue.
The FBR will try to incorporate approved slabs in the Finance Bill to ensure improvement of the FED collection from cigarette industry instead of following private sector proposal safeguarding interest of the cigarette manufactures. Following is the proposed revised FED structure submitted by the cigarettes' manufactures to the FBR: The rate of the FED would be Rs 2325 per thousand cigarettes in case of locally produced cigarettes if their on-pack printed retail price exceeds Rs 2286 per thousand cigarettes. The rate of the FED would be Rs 880 per thousand cigarettes in case of locally produced cigarettes if their on-pack printed retail price does not exceed Rs 2,286 per thousand cigarettes.
Following is the revised FED structure drafted by the FBR and duly approved by the Ministry of Finance: Under first proposed slab, if retail price exceeds Rs 50 for 20 cigarettes, rate of the FED would be 65 percent of the retail price. The second proposed slab reveals that if retail price does not exceed Rs 50 for 20 cigarettes, the rate of the FED would be 25 paisa per stick plus 50 percent of retail price. The existing three slabs have been proposed to be replaced with two slabs of the FED on cigarettes. The existing upper-tier slab, middle-tier slab and lower-tier slab have been merged into two simple slabs of the FED.
In case the FBR's proposal is implemented, the rate of the excise duty would correspondingly increase with the increase in the prices of the cigarettes. This would increase FED collection from the commodity. On the other hand, as per new proposal of cigarette manufacturers, the rate of the FED on cigarettes has been fixed. If the prices of cigarettes would change, the rate of the FED would not be revised due to fixation of the excise duty.
Sources said that the FBR had proposed a very simple Federal Excise Duty (FED) structure for levying duty on cigarettes. This proposal was duly approved by the Finance Ministry for revision of the FED slabs on cigarettes. However, a new proposal was recently floated by the cigarette manufactures which was incorporated in the unsigned Presidential Ordinance. The FBR's original proposal has estimated collection Rs 12 billion from the cigarette industry. The new proposal of the industry has also estimated Rs 12 billion from revised slabs but according to FBR's officials the revenue might be much less as estimated by the cigarette manufacturers. The two proposals are entirely different. The FBR's proposal has merged upper-tier slab, middle-tier slab and lower-tier slab into two simple slabs of the FED. Whereas the new proposal of cigarette manufacturers has replaced the existing serial number nine and ten of the First Schedule of the Federal Excise Act, 2005. The last slab number 11 of FED has been proposed to be abolished by the cigarette manufactures. The method of revision of the FED on cigarettes is also very different when both the proposals are compared, they added.