Cut in FED cost kitty Rs 85 billion in two years: SPDC

The third-tier tax structure resulted in reduction of average Federal Excise Duty (FED) of around 12 percent that caused loss of around Rs 85 billion to the national exchequer in last two financial years, a study revealed Wednesday.
The study conducted by Social Policy and Development Center (SPDC) found that third-tier tax structure resulted in a reduction of average FED across all tiers by nearly 12 percent, from 53.1 percent in 2016-17 to 41 percent in 2017-18.
The study has revealed that the estimated loss of tax revenue due to introduction of three tiers FED structure (along with reduction in tax rate) is Rs 42.5 billion in 2017-18 and the same amount, ie, Rs 42.5 billion in 2018-19; which is an accumulative loss of Rs 85 billion to the government in two years.
The change in tax policy not only led to a significant increase in the consumption of cigarettes but also resulted in substantial revenue loss equal to over 50 percent of revenue collected in the previous years.
During 2017-18, decline in the prices of cigarettes by 22 percent was associated with a 72 percent increase in production which subsequently led to increase of more than 100 percent net profit of multinational tobacco industries.
The study said that the tobacco industry always depicts their image that they provide huge amount to the government each year in taxes, but it is irony that tobacco industry makes only very small contribution to Pakistan economy.
Despite being one of the largest tobacco growing countries, the un-manufactured tobacco production accounts for only less than half percent (0.42) of total value of agriculture produce, 0.25 percent the total area under cultivation and 0.03 percent of agricultural employment (8,200).
Similarly, the cigarettes industry share is 1.1 percent only in large sale manufacturing and less than half percent (0.3) in industrial employment.
This needs to be clearly understood that 10 percent increase in price will lead to 11 percent reduction in cigarettes consumption translating to annual saving of Rs16 billion by individuals.
Recent research study on burden of illicit trade of cigarettes in Islamabad has revealed that there is only 15.95 percent illicit trade of cigarettes being used in Islamabad.
Out of this only 10.74 percent are illicit as smuggled while only 5.2 percent are low priced cigarettes being used in Islamabad. The other important findings are that 25 percent of smokers supports and willing to quit smoking if the price of cigarettes be doubled, which makes very strong case of increase in taxes on cigarettes.