Senate committee criticizes FBR for Rs31bn tobacco tax loss

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ISLAMABAD: A Senate Committee has criticized Federal Board of Revenue (FBR) for its failure to check revenue loss of around Rs31 billion at a time when the country is in dire need of finances.
The Special Committee of the Senate on Cause of Decline in Tax Collection of Tobacco Thursday expressed dissatisfaction over the efficiency of the FBR that caused billions of rupees loss to the national exchequer, especially after revision in tax structure for the tobacco industry.

The committee which met here under chairpersonship of Senator Kalsoom Parveen, observed that after the unveiling of the three-tier based Federal Excise Duty (FEDF) structure in May 2017, the tobacco industry players shifted their famous brands to the lowest duty slab, which drastically reduced federal excise duty by Rs31 billion while contrary to it, their tobacco sales were increased.
The 3-tier based FED structure was introduced with almost 50 percent cut in the FED rate.
The chairperson criticized the FBR for its failure to check this revenue loss and said that at a time when Pakistan was in dire need of finances, losing a potential taxes of around Rs31 billion, which was very unfortunate.
The committee asked the FBR to come up with details during next meeting of all those factory owners who were making unbranded cigarettes and action taken against them.
The committee was of the view that it was not a difficult job to check these tax gaps and collect potential tax from tobacco companies by putting in place different filters to detect leakages in taxation.
The committee members blamed that this tax evasion was not possible without the support of some FBR officials for personal gains.
On the occasion, the representatives of FBR, led by its Chairperson Rukhsana Yasmin, informed the committee that the loss was incurred due to flooding of market by non-paying illegitimate cigarette brands available at very cheaper rates.
They were of the view that availability of non-paying brands affected the competitiveness of the duty-paying brands, which reduced their sales and resultantly decreased the federal excise duty and production.

They were of the view that the production of cigarettes had declined from 56 billion sticks to 30 billion sticks due to this phenomenon.
They informed the committee that some of these brands were being manufactured in Azad Jammu and Kashmir and some areas of Khyber Pakhtunkhwa, however assured the committee that the FBR would be providing details in next meeting.
They also informed the committee that it was not possible for them to check such practices in Azad Jammu and Kashmir due to jurisdiction limit however they could set up check posts to check such brands crossing into Pakistan.
The FBR representatives said that imposition of 5 percent advance tax on purchase of tobacco was meant to detect tax evasion.
On the occasion Pakistan Tax Board (PTB) informed the committee that other than CESS it had collected about Rs461.4 million advance taxes at the rate of 5 percent on purchase value of tobacco.
Auditor General of Pakistan informed the committee that after introducing the third tier of taxes, the sales of Tobacco Companies has risen over 31.64 percent while the tax collection inched up only 4 percent.

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