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ISLAMABAD: An initial inquiry by the National Accountability Bureau (NAB) has said the three-tier tax system has allowed cigarette makers to pay reduced excise duties and improve sales. It has also alleged that the Federal Board of Revenue (FBR) was not cooperating with the inquiry.

The initial inquiry has initiated a probe into Rs33 billion worth of tax benefits obtained by two main multinational cigarette manufacturing companies through a change in the tax slab structure.

The inquiry was initiated by NAB Rawalpindi in April 2018 but FBR is yet to appoint a focal person to assist the NAB team.

Says FBR not cooperating for inquiry into tax benefits obtained by two multinational cigarette manufacturing companies

“NAB has already taken up the matter and an initial investigation against cigarette manufacturers has begun,” NAB Rawalpindi spokesperson Mohammad Bilal said.

He added that the Public Accounts Committee (PAC) had also in its meeting on May 23 recommended a special report by the Auditor General of Pakistan on causes of decline in tax collections from the tobacco sector.

Mr Bilal said it will take NAB two months to verify the record and some four months to conduct an investigation under set procedure “if the relevant department cooperates with the investigations”.

“It has been revealed that after the introduction of third tier tax structure in May 2017 the two major players had shifted their famous brands to the lowest tax slab and sold their cigarettes with 50pc reduction in federal excise duty, which enhanced their sales but revenues plunged,” the NAB inquiry says.

A similar observation was made in the audit report over the matter which was submitted to PAC.

Against the previous two-tier structure, FBR had introduced a new tier with only Rs800 as federal excise duty, which is 50pc less than the lowest rate previously.

The FBR did not place a restriction on shifting from the second to the lowest slab which gave Rs32.9 billion worth of benefits to two cigarette manufacturers, the report says.

FBR has therefore provided a safe way for the two multinationals to pay less tax through the three-tier structure.

Pakistan has one of the largest numbers of tobacco users in the world with around 11pc of its total population being smokers.

The three-tier system was introduced when Ishaq Dar was the finance minister and the Ministry of National Health Services had also asked FBR to withdraw the third tier of federal excise duty so widespread use of cigarettes is discouraged.

Published in Dawn, September 1st, 2018