Tobacco industry seeks imposition of Rs300/kg advance tax on GLTP

ISLAMABAD: Tobacco sector on Monday asked the government to enforce brand licensing regulation, implement track and trace system and impose advance tax of Rs300/kg on green leaf threshing processing (GLTP) units in budget 2022-23.

Industry high-ups projected that they were going to pay over Rs150 billion in the national kitty during the outgoing fiscal year 2021-22 against Rs134 billion taxes paid in 2020-21 and Rs117 billion in 2019-20.

Industry responded well to government maintaining status quo in taxation rates of tobacco. Now the industry was demanding to reverse the decision to impose advance tax of Rs10/kg on tobacco and jack up the rate up to Rs300/kg in the coming budget.

The Pakistan Tehreek-e-Insaaf (PTI) led government had increased the advance withholding tax from Rs10/kg to Rs300/kg in the fiscal year 2018-19 through supplementary budget when Asad Umar was the Minister for Finance. But in budget 2019-20, this decision was reversed on the alleged pressure of former Speaker National Assembly Asad Qaiser on pretext that this tax was imposed on tobacco farmers.

He had constituted a committee and allegedly recommended the then government and the FBR to reverse the decision when the budget for 2019-20 was finally approved by the National Assembly.

However, the formal sector giants such as Pakistan Tobacco Company (PTC) and Philip Morris International (PMI) Pakistan always argued that this withholding tax was in adjustable mode and was slapped on manufacturers, which had nothing to do with farmers.

There were only 11 GLTP units located in parts of Khyber Pakhtunkhwa and the imposition of Rs300/kg advance withholding tax could make illicit business unviable.

“We can vouch that if the government imposed an advance tax of Rs300/kg on GLTP units in the upcoming budget, the share of illicit cigarettes will drastically slash down from 40 percent, equivalent to Rs70 billion, to just 20 percent with no time,” Noor Aftab, Senior Regulatory Affairs Manager, PTC said while briefing journalists on Tobacco Industry Dynamics.

Quoting different studies, he said that Oxford Economics, PWV, IPSOS, and Institute for Public Opinion Research (IPOR) estimated that the share of illicit cigarettes in Pakistan ranged between 37.6 percent and 40 percent. It demonstrated that over 200 brands violated minimum tax and minimum price, causing Rs80 billion annual loss to the national exchequer.

The PTC official said that the industry could evaluate FBR’s proposal to collect federal excise duty (FED) at the stage of GLT processing in order to discourage illicit cigarettes. Shopkeepers in major markets of cities and towns across Pakistan openly sold illegal cigarette packs.

More than 200 local illicit cigarette brands sold between Rs20 and Rs40, whereas the mandated minimum price was Rs62.76, inclusive of a minimum tax per pack of Rs42.12. These violations compromise the government's fiscal objectives and public health agenda.

In 2021, the government promulgated a law regarding brand licensing that binds cigarette manufacturers to register their brand before launching that into the market. The law was introduced to discourage illegitimate brands from entering the market.

However, the implementation of the law was very weak, and still more than 150 unregistered brands belonging to local tobacco manufacturers openly sold products in the market. Only 16 cigarette brands have applied for registration so far.

The government introduced a track and trace system in the tobacco sector to control tax evasion. Only three companies so far were in the process of implementing the system that requires huge investment, while local players were hesitant to implement the system so they continue to dent the economy by flouting laws to evade taxes. Four of the local cigarette manufacturers have been awarded stay orders from the court, creating delays in implementation.