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Uniform FED on cigarettes opposed

August 09, 2012

ISLAMABAD, Aug 8: The cigarette industry on Wednesday requested the finance ministry not to implement the idea of a uniform excise duty on all cigarette brands suggested by the World Health Organisation, as opposed to the current tiered one.

In a meeting with finance ministry officials, a delegation of cigarette manufactures said that the WHO recommendation recently adopted in Geneva, is not suitable for the country like Pakistan, where the socio- economic structure is different from that of European countries.

Currently, in Pakistan, federal excise duty (FED) is different on various brands of cigarettes, based on the value.

“The present system is that there is high tax on costlier cigarettes and a uniform average tax would mean that FED would be lowered on high end cigarettes and increased on cigarettes of low value brands,” said an official of the finance ministry.

“Unlike the developed countries, there is a large gap between low income groups and the well off class in the country.”

The experts from cigarette industry are of a different opinion about the concept of tax sovereignty, which is accepted by the WHO, as societies differ across the world in various ways.

“Higher taxes doesn’t necessarily mean higher revenues, ’said one official of the cigarette industry, adding, “This is because there is a serious issue of tax evasion in county and as tax rate would be increased many local manufacturers would prefer not to pay taxes at all.”

Tax experts are unanimous that a target based on excise incidence is meaningless as there is no correlation between excise incidence and excise yield.

The delegation told the officials that FBR tax excise structure on cigarettes has been yielding optimum revenue for FBR for the last 10 years, which is in line with the government policy.

The two major cigarette manufacturers contributed Rs58 billion in taxes and other levies in 2011-12, while only Rs0.5 billion was contributed by other cigarette manufacturers.

The industry claims that cigarette sector delivers nearly 37 per cent of total FED collection and almost 3.9pc of total FBR revenue.

The delegation told officials that the tax rate on a pack of cigarettes is high within the region and was up to 81 percent of the total value of the packet in certain brands.

“We fear that any increase in taxation could lead to higher smuggling of cigarettes in Pakistan,” the industry players said.