SWABI: Tobacco growers are worried about the financial impact as both federal and provincial governments prepare to extract more taxes from the “lucrative crop”.

For the first time ever, the Khyber Pakhtunkhwa government has imposed a Provincial Excise Duty (PED) on tobacco crops through a newly passed law.

Unmanufactured tobacco will be levied Rs50 per kg under the Provincial Excise Duty (Unmanu­factured Tobacco) Act 2024.

Tobacco growers have said the new tax will have a far-reaching impact on their businesses, as cigarette companies always transfer the impact of added taxation to them.

Farmers anticipate hike in FED collected by centre

While talking to Dawn, Liaqat Yousafzai, the central general secretary of the Kashthkar Coordination Council, said a Federal Excise Duty (FED) is already imposed on cigarettes by the federal government.

“[A]fter the Eighteenth Amendment, [taxation on] tobacco should be under the jurisdiction of the KP government.”

But the federal government is taxing the “lucrative crop” due to the hefty income in the shape of FED.

In the current financial year alone, it has collected Rs122 billion, he added.

According to Mr Yousafzai, the coalition federal government is expected to raise the FED further in the federal budget to increase revenue.

In a proposal submitted to the health ministry last month, the World Health Organisation has sought a 37 per cent increase in the FED on cigarettes.

The KP and federal governments are already at loggerheads, and it seems that a “serious rivalry” will soon erupt over tobacco taxation, Mr Yousafzai said.

Double taxation

The PED Act, a copy of which is available with Dawn, aimed to impose the duty on unmanufactured tobacco produced and processed in the province to increase revenues and reduce the use of the commodity.

“Unmanufactured tobacco” means raw or bulk product not yet processed into consumer products such as cigarettes or cigars.

This includes various forms of tobacco leaf, such as whole leaf, stripped leaf, or partially processed leaf that retains its natural state and characteristics.

“This product is distinguished from manufactured tobacco products, which are ready for consumption and have undergone significant processing and packaging,” explained the Act, which is set to be enforced from July 1, the first day of the next fiscal year.

A mechanism has been adopted to collect the PED from growers, keep a record of unmanufactured tobacco, and allow the government to issue standard operating procedures from time to time.

“No unmanufactured tobacco shall be moved outside the province unless excise duty is paid therein by the Green Leaf Threshing unit … wherein tobacco leaves are subjected to processing before the manufacture, export, storage, or transportation of cigarettes.”

Regarding penalties, the Act stated that any threshing unit failing to pay the PED within 30 days of the recovery notice will be penalised twice the amount of duty.

The fine will be paid in addition to the principal amount.

If the fine is not paid, the Act empowered the district officer to seize, confiscate, and auction the unmanufactured tobacco.

The provincial government has also increased the Tobacco Development Cess from Rs6 per kg to up to Rs50 per kg based on toabbaco’s type.

The Virginia tobacco (flue-cured, Barley and dark-aired-cured) will be levied Rs50 per kg, white leaf (patta) tobacco at Rs30 per kg and snuff at Rs7.5 per kg.

In the current year, the total tobacco requirement is estimated at 77.32 million kg, of which the requirement for Virginia tobacco, also called FCV (Flue-Cured Virginia) after curing, is 74.44m kg.

FCV is the major raw material procured by multinational and national companies and small cigarette manufacturers.

Published in Dawn, June 9th, 2024