Budget 2020-21: CGO 12 to be amended to dispose of seized cigarettes

To control the consumption of smuggled cigarettes, the government is planning to remove a major distortion in the customs laws during budget (2020-21), by amending a Customs General Order (CGO) 12 of 2002, which allows confiscated/seized smuggled cigarettes to be offered to the PIA/Duty Free Shops on appraised value with 25 percent discount.

Another budget proposal under consideration is raise the advance adjustable Federal Excise Duty (FED) on un-manufactured tobacco from Rs10 per kg to at least Rs500/kg in the coming budget (2020-21).

Industry sources told Business Recorder that the auction of the non-duty paid smuggled cigarettes by the customs is a very serious issue being face by the documented cigarette manufacturers.

This basically encourages consumption of counterfeit and duty not paid (DNP) cigarettes in the country, which needs to be checked in the coming budget through amendment in the relevant law.

Sources added that the amendment would enable the customs authorities to destroy the confiscated/seized cigarettes under the procedure for disposal of seized/confiscated goods by the agencies.

According to the budget proposal under consideration of the FBR, the Customs General Order (CGO) 12 of 2002 outlines the method of disposal of confiscated smuggled cigarettes.

According to entry 34(a)(VI) of |CGO| 12 of 2002, the confiscated/seized smuggled cigarettes, will be offered to PIA/Duty Free Shops on appraised value with 25 percent discount.

The said method of disposal of confiscated smuggled cigarettes raises following serious issues: First, the auction of confiscated smuggled cigarettes creates a lot of nuisance for the legitimate industry as the auction sheet/release order issued by customs authorities is used multiple times by manipulators to pass their shipments as legitimate.

Second, the smuggled cigarette packets do not carry the mandated health warning under the SRO 86 (K.E)/2019, which includes the graphical health warning (GHW).

Third, many of the smuggled cigarette packs are two to three years old and may pose significant health threats to the consumers.

Fourth, the revenue loss is not just limited to manufacturer, the government suffers twofold loss: first, the applicable taxes/duties are evaded on the sale of smuggled cigarettes, and; secondy the sale of smuggled cigarettes is detrimental to the sale of duty paid cigarettes.

Details revealed that Customs General Order 12 of 2002 outlines the method of disposal of confiscated cigarettes.

According to entry 34(a)(VI) the confiscated/seized cigarettes, will be offered to PIA/Duty Free Shops on appraised value with 25 percent discount.

Entry 34(b) stipulates that if the confiscated/seized cigarettes cannot be disposed off in this manner, then they are to be sold by the respective agencies through an auction conducted in accordance with the prescribed Auction Rules, and in the presence of the assistant collector in-charge of auctions in the respective Collectorate of Customs.

The PIA/Duty Free Shops are no longer interested in acquiring cigarettes to the extent they were in the past.

In the case of the PIA this is because all PIA flights are non-smoking and smoking is also prohibited in the airports, and in the case of Duty Free Shops, there is little business viability for them to store international cigarette brands, which are either of dubious quality or which in any case are easily available, often at cheaper prices, in the outside market on account of smuggling.

Therefore, in effect PIA/Duty Free Shops rarely, if ever, take up the option of acquiring confiscated/seized cigarettes, and resultantly such cigarettes are invariably auctioned off through an open auction.

It is however observed that the phenomenon of auctioning confiscated/seized cigarettes leads to the following negative consequences: The cigarettes being put up for auction do not carry the mandated health warnings of the Government of Pakistan and are in violation of the Cigarettes (Printing of Warning) Ordinance, 1979.

The auctioned cigarettes create a lot of nuisance for the legit industry because the invoice or release order issued by the Customs authorities pertaining to the auctioned lot is used multiple times by dealers of smuggled cigarettes to show that they have been obtained through a legal process, whereas the truth is to the contrary.