In the steamy session of the National Assembly, the parliamentarians were told that Rs240 billion is stolen as only two multinational companies pay 99 percent of tax in tobacco sector and all local companies account for only one percent of tax collection.
However, this data seems to be driven out of the myths that the multinational companies have long been creating to seek tax relaxations. A recent myth-breaking report by Society for the Protection of the Rights of the Child (SPARC) has mentioned that after track and trace system has been put in place, volume of illicit trade in cigarettes has plummeted down to 15 percent. In addition, Mukaram Jah Ansari, head of Pakistan Customs at the FBR, has recently appreciated his teams for seizing huge quantities of smuggled cigarettes of international brands in huge quantities from Quetta and Lahore. In Quetta, the FBR states that it has seized Rs102.5 million worth of smuggled cigarettes and in Lahore it has seized Rs78 million worth of smuggled cigarettes. Ansari has tweeted appreciation for his teams.
Similarly, health activists have appreciated Prime Minister Shahbaz Sharif’s directives to curb down illegal trade of tobacco products in Pakistan. In a press release shared by SPARC, the health activists mentioned that Federal Board of Revenue’s Track and Trace system has kept illicit trade from going above 15%. This system should be implemented in all companies to achieve further benefits. The activists also mentioned that during pre-budget seasons, tobacco industry uses blown up percentage of illicit trade to influence the policymakers from raising taxation according to the rate of inflation.
Malik Imran, country head, Campaign for tobacco-free kids (CTFK), mentioned that tobacco induced disease causes an annual economic burden of 615 billion which is 1.6% of Pakistan’s GDP. He said that an industry which is causing such unprecedented level of damage to public health and economy, brazenly claims that any damage control move is against Pakistan’s interest. Imran mentioned that every budget season, tobacco industry uses the illicit trade excuse to ensure that tobacco taxes are not increased. This is a cover used by tobacco industry to divert people from the underreporting. These companies under-report their production and then sell their non-reported products in the illicit market, causing billions of loss to the national exchequer. He quoted findings of a latest research on illicit cigarette Pakistan which revealed the percentage of illicit packs of cigarette was around 15%.
Imran mentioned that tobacco industry should not have any problems paying the additional taxes because it never pays them from its own coffers. Tobacco companies have increased their net-of-tax prices. Due to over-shifting, the excise tax share in retail price remains at 51.6%, lower than the widely-accepted benchmark of 70%.
It also appreciated the prime minister’s initiative to put FED on cigarettes that is bound to generate revenue more than ever. In another report, SPARC says that despite a substantial decline in declared production by cigarette manufacturing companies, their turnover and gross profit have increased during the first nine months of the current fiscal year, reflecting that the firms are falsely reporting their production to avoid taxes and influence tax policy. These views were shared during an event organised by to the launch of policy brief ‘Facts vs Industry Narrative: Cigarette Production and Taxation in Pakistan’, published by Social Policy and Development Centre (SPDC).
