FED structure of cigarettes revised

The government has revised federal excise duty (FED) structure on cigarettes on the basis of FED slabs proposed by the multinational cigarette manufacturing companies. Through Finance Bill (2013-14) issued here on Wednesday, the Table-I of the First Schedule of the Federal Excise Act 2005 has been amended to replace the three-tier FED structure with the two-tier specific rate structure.
The revised FED structure on cigarette has been drafted by the multinationals and the same has been duly incorporated in the Finance Bill. This is for the first time that the Federal Board of Revenue (FBR) has taken major budgetary measure regarding the FED on the basis of proposal drafted by the cigarette manufacturers. According to the revised FED structure as per Finance Bill (2013-14), 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 2286 per thousand cigarettes.
The FBR has estimated to collect Rs 12 billion from the revised FED structure on cigarettes. According to the FBR, Rs 65 billion was collected as ST & FED from cigarettes sector during financial year (2011-12). The budget proposal was considered aiming at additional revenue of Rs 12 billion from cigarette industry. The current FED structure of cigarettes is a three tier structure based on the pricing of different brands of cigarettes. The duty structure is required which creates a balance between exchequer's revenues, legitimate industry's volumes and also acts as a control against illicit sector and counterfeit & smuggled cigarettes. The three tier system needs to be replaced with a simpler two tier system, so that neither the revenue is compromised nor the legitimate businesses are hurt in line with best global practices.
When contacted, tax experts said the cigarette manufacturers have already made an attempt to incorporate the proposal of their choice in the un-signed Tax Laws (Amendment) Ordinance, 2013 for revision of the FED slabs on cigarettes. The expected revenue in 2013-14 from the FBR's proposed slab is much more as compared to the FED structure proposed by the multi-national cigarette manufacturing giants.
As per initial proposal drafted by the FBR, 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.
As a result of the FBR's proposal, 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. The 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 Finance Bill 2013-14.