Better policy

A special committee of the Senate reported some time back that the third-tier of taxation on tobacco did not benefit the government. But before the third tier, the revenue short fall increased a lot and FBR clearly mentioned illicit cigarette trade in this regard. Non-duty-paid cigarettes were selling 20-pack cigarette-boxes below the minimum price around Rs72 per pack. The market share of the illegal segment of tobacco was increasing rapidly due to price gap. FBR introduced the third tier so that the legal tobacco industry could get a level playing field and the government could get more revenue in terms of taxation.

The latest facts – from the media – highlight that the government revenues have risen but are still shy of the peak. The duopoly’s total reported taxes – federal excise duty, sales tax and income tax – reached Rs107.8 billion in CY18, up Rs40 billion as compared to Rs66 billion in FY 2016-17. The prime minister said on several occasions that the illegal cigarettes industry is denting the economy badly. Rather than hitting the taxation system again and again, I believe that action against the illegal trade of tobacco can help achieve revenue goals from tobacco. Further tax burden will only create price gap again which will help non-duty-paid sector to gain more market shares. Lawmakers should give priority to the betterment of national economy and avoid giving illogical policy suggestions.

Zohaib Khan

Islamabad