ISLAMABAD: Tax paid by the tobacco industry for the current financial year will be over Rs90 billion – around Rs10bn more than that paid last year.

However, it will be around Rs24 billion less than the tax (Rs114bn) paid in the fiscal year 2015-16, say the latest estimates of the Federal Board of Revenue (FBR).

Head of the Human Development Foundation Azhar Saleem believed that the estimated target of Rs120bn tax would not be achieved as the tobacco industry had reduced the prices of some brands to bring them to the lower tax slab. He suggested abolishing the third tier of taxation in the upcoming budget which would be announced on April 27.

The industry has reduced prices of some brands to bring them to the lower tax slab, says expert

However, FBR spokesperson Dr Mohammad Iqbal claimed that critics were playing with the statistics.

He suggested that the collection of taxes should be compared to that of last year rather than the previous years.

Before the announcement of the current year’s budget, the Ministry of National Health Services (NHS) had suggested increasing the tax on cigarettes and recommended that the minimum tax should be Rs44 for a pack of 20 cigarettes.

But in the budget the third tier of taxation was introduced after which the tax on cigarettes got reduced to as low as Rs16 per pack.

Health experts had expressed the fear that this would increase tobacco consumption in the country.

A recent report of the State Bank of Pakistan (SBP) showed that the production of cigarettes had increased by more than two times.

Mr Saleem told Dawn that earlier there were two tax tiers but when the third tier was created the tobacco industry started claiming that there would be an increase in taxes to tune of Rs120bn.

“However, now it is being claimed that the tax contributed by the tobacco industry will be just Rs90bn. It is strange that the production of cigarettes has doubled but the collection of tax would be just around Rs90bn. But in the 2015-16, the industry had contributed Rs114bn to the exchequer,” he said.

He said according to media reports the strategy of the FBR to increase revenue by decreasing tobacco taxes had failed.

The Large Taxpayers Unit Karachi, the biggest revenue arm of the FBR, has advised the FBR to abolish the third tier of tax on cigarettes as it promoted the sale of cigarettes without a positive impact on the revenue.

A recent study released by the Sustainable Development Policy Institute (SDPI) also said the introduction of the third tier had almost doubled the tobacco consumption in the country.

Mr Saleem said though the third tier could have been introduced with a good intention it proved that the idea had failed because the tobacco industry reduced the prices of some brands due to which they were shifted from the second to the third tier which had a lower tax rate.

“Because of the reduction in prices the industry got financial benefit but the government faced losses as some brands went from the second to third tier by reducing their prices,” he said.

The prices of different brands ranged between Rs58 and Rs62 for 20 cigarettes but they were reduced to Rs48 due to which they were dropped from the second tier and placed in the third tier. Now the industry is paying less tax on these cigarettes.

When contacted, the FBR spokesperson said last year the tobacco industry had paid Rs80bn tax and in the current year the amount would increase to over Rs90bn. The current figure should be compared to that of last year, not a few years back.

He said the FBR would come up with the replies to all such critics in the forthcoming meeting of the Public Accounts Committee.

According to a report of the Ministry of NHS published a few years ago, tobacco use was the single largest preventable cause of diseases and deaths in the world. In Pakistan, tobacco causes death of around 108,800 people every year.

Published in Dawn, April 23rd, 2018