ISLAMABAD: The Senate Special Committee on Causes of Decline in Tax Collection of Tobacco Sector has suggested removal of the three tier taxation system on cigarettes and revert it to the two tier system.

The committee, headed by Senator Kulsoom Parveen, was formed in 2018 to probe causes for the decline in tax collection from the tobacco sector from Rs114.27 billion in 2015-16 to Rs83.76bn in 2016-17.

The matter was taken up by the Public Accounts Committee but after the dissolution of the National Assembly in 2018 it was sent to the special committee of the Senate.

The committee has submitted its report to the Senate chairman after several field visits to tobacco growing areas and meetings with stakeholders.

The recommendations proposed by the committee included removal of the three tier taxation system as it could not substantially enhance the government revenue as was expected while formulating the policy.

The committee suggested to the government to systematically increase the federal excise duty on cigarettes every year to comply with international regulations on tobacco control and increase the revenues.

The committee also suggested a comprehensive strategy to stop smuggling of international brands, production of non-duty paid and counterfeit cigarettes.

All stakeholders, including tobacco growers, multinational companies, local manufacturers of cigarettes, ministries of commerce, national health services and regulations and commercial dealers, should be taken on board by Federal Board of Revenue (FBR) while revising taxation on the tobacco sector.

The special committee also said FBR should immediately withdraw SRO No 1149 which had imposed heavy taxes on commercial dealers of locally grown tobacco.

It downplayed accusations made by multinational companies regarding sale of illicit cigarettes in the country.

It said the incident of illicit trade had not been independently studied and the country was merely blamed for the sale of smuggled and counterfeit cigarettes.

Published in Dawn, March 8th, 2019