‘GLT plants can generate Rs240bn tax revenue’

LAHORE: The federal government can generate Rs240 billion in revenue by tackling illicit cigarette trade by implementing the tax at green leaf threshing (GLT) plants instead of the manufacturing and retail levels.

An expert suggested that collecting advance tax at the green leaf threshing stage, rather than at the manufacturing or retail level, could prove to be a more effective approach in countering illicit trade. But unfortunately, the implementation/enforcement of most policies is missing from the system. “The threshing season is yet to start and there is still time if the government gets its act together,” the expert pointed out.

Currently, Pakistan has only 10 GLT plants, where all the country’s tobacco undergoes processing. To address tax evasion, the government has imposed an advance tax of Rs390 per kg on tobacco leaf. If this tax is collected at the threshing stage, manufacturers would have little room to evade taxes.

According to the Pakistan Tobacco Board, approximately 22.3 million kilograms of tobacco were threshed at the 10 green leaf threshing plants in the country last year. This processed tobacco is then sold to the 52 registered cigarette manufacturing companies.

By ensuring the collection of advance tax at the GLT stage, the overall volume of tax evasion in the tobacco industry would be significantly reduced.

A monitoring system for GLT plants already exists and can be enhanced through the use of digital technologies.

According to the FBR SRO 1149, the GLT plants cannot sell unmanufactured tobacco to individuals not included in the active taxpayers list. The SRO authorises the FBR to appoint an Inland Revenue Officer to oversee these plants, monitoring and verifying tax receipts, as well as tobacco processing, storage, waste, and sale to non-manufacturers.

Furthermore, GLT plants are required to submit monthly details of threshing, storage, waste, tobacco supply, and applicable levies to the commissioner. Unfortunately, out of 10 GLTs in Pakistan only 2 have a monitoring mechanism, also only two multinational companies pay 98 percent in taxes.

“Tax evasion on cigarettes not only reduces the government’s capacity and resources to address public issues and provide essential services, but also undermines the effectiveness of the government’s health policy, which aims to make cigarettes less accessible to the public,” said Syed Saifullah Kazmi, Head of Investment Banking at Intermarket Securities Limited.

He emphasised that monitoring and collecting taxes at the 10 threshing plants in the country is far more manageable than doing so at the manufacturing and retail levels. Implementing this mechanism would ease the pressure on tax authorities, allowing them to allocate their resources and efforts towards enhancing tax collection from other sectors.