Directorate General of Intelligence and Investigation Inland Revenue (IR) Federal Board of Revenue (FBR) has decided to conduct focused study of multinational cigarette manufacturing companies and in-depth research of tobacco sector with the help of Pakistan Tobacco Board (PTB) under the national drive to improve sales tax and Federal Excise Duty (FED) collection from cigarette industry.
Sources told Business Recorder here on Sunday that the latest status of the enforcement exercise has been shared by the Ansar Javed, Director General of Intelligence and Investigation Inland Revenue, FBR at a recent seminar on tax evasion held here with particular focus on combating duties and taxes evasion in tobacco sector.
According to the sources, the Directorate General of Intelligence and Investigation has made a major breakthrough by generating additional revenue of Rs 3.333 billion through various enforcement actions in different sectors including cigarette, tobacco and beverage etc.
The amount also included additional amount of duties and taxes from the compliant sector.
The directorate has chalked out a future strategy to check evasion in the cigarette/tobacco industry. Beside ongoing exercise against non-duty paid cigarette/beverage manufacturers, the agency has finalised a new plan to tackle the issue at policy level through research, study, data analysis and sector-specific study etc.
It covers in-depth research in tobacco sector in collaboration with Pakistan Tobacco Board, industry analysis with bench marking, duty/tax compliance by local manufacturers matching with their market share and listing and registration of all outlets, retailers/dealers/stockists/brokers etc. dealing in this line of business.
The policy measures like focused study of multinational cigarette manufacturers etc are part of the overall plan of the Directorate General of Intelligence and Investigation IR''s plan to improve collection from this potential sector.
The outcome of ongoing exercise by the directorate of intelligence IR resulted in detection of substantial evasion of duty/tax evasion by local manufacturers; expansion of tobacco''s tax base more closely focusing illicit trade in the provinces of Punjab and Sindh; evolving close liaison with Azad Jammu and Kashmir (AJK) Tax authorities and treaty clauses are being invoked (South Korea) in order to preempt and monitor inflow of smuggled cigarettes.
The results of ongoing exercise by the directorate of intelligence IR has a positive impact which has been dully acknowledged by the tax compliant sector.
The revenue from tax compliant sector witnessed visible surge eg revenue during July 2010 to February 2011 was Rs 37.590 billion and revenue during July 2011 to February 2012 was Rs 40.923 billion from compliant sector, reflecting an additional revenue of Rs 3.333 billion.
The administrative measures of the Directorate General of Intelligence and Investigation IR included constitution of mobile teams at KPK, Islamabad, Lahore, Faisalabad and Karachi; strengthening of I&I-IR''s physical logistics; securing trained workforce from FBR''s IR Wing; swift co-ordination with regional tax offices (RTOs) for joint operations and cross matching of records and internal controls for ensuring fair and transparent exercise.
Sources said that the enforcement measures in the cigarette industry revealed that the directorate is already engaged in Investigative Audits of 5 Green Leaf Thrashing units.
The agency has detected three cases of illegal import of raw material (Cigarette Paper, Acetate tow etc.). The tax evasion of Rs 120 million has been worked out in one case.
The directorate has identified major persons/concerns involved in sale of non-Duty/Tax paid cigarettes and identified suspected tobacco warehouses.
The enforcement measures also included surprise visits to the local cigarette manufacturing units to check conduct and attendance of the RTO''s staff posted for monitoring under section 40B of Sales Tax Act 1990.
Other measures included notification of manufacturing premises, storage Depot/ warehouses; close liaison with RTOs for identification of alternate manufacturing facilities; intelligence gathering for counterfeit units and proposals to FBR for more comprehensive enforcement of existing legal provisions.
In a short span of few months, the directorate of intelligence IR has also been able to seize 6 million non-duty paid locally manufactured cigarette sticks and the number of seizures/detention was over 50,000 non-duty paid cigarettes foreign sticks and over 27000 KGs un-manufactured tobacco.
The directorate has sealed two un-authorised warehouses of un-manufactured tobacco and impounded record of a sole distributor reflecting evasion of duties and taxes over Rs 100 million.
The enforcement strategy also covered awareness campaign based on in-put from all stakeholders; display of relevant legal provisions on FBR''s Web-Portal; countrywide awareness interface with retailers/dealers/wholesalers; pamphlets published in print media; limited coverage by electronic media and notices to wholesalers/retailers of cigarettes.
To combat illicit tobacco/cigarette trade, the directorate of intelligence IR has conducted sector study (tobacco) to ascertain the evasion prone areas.
It also included review of existing legal framework; dialogue with all stakeholders; outlining the roadmap and identification of priority action areas.
Three pronged enforcement strategy covered balanced taxation regime; awareness campaign and concrete enforcement measures.
Within the tobacco industry, the sector research indicated duties and taxes evasion of around Rs 10 billion; FED on un-manufactured tobacco is by and large evaded in the garb of litigation.
The local manufacturing units are thickly involved in evasion of Duty/Taxes and a KPK based Unit paying annually around RS 5 million taxes has been found involved in evasion of Rs 100 million.
The illegally imported raw material is being used for manufacturing of non-duty paid (NDP) cigarettes. The evasion of Duty/Taxes in one such case is over Rs 120 million.