Illicit Cigarette Sales Unabated as FBR Fails to Register Brands

The Federal Board of Revenue (FBR) has failed to register cigarette brands, allowing over 150 unregistered cigarette brands to function in the open market.

According to the details, the Federal Government, in 2021, promulgated a law regarding brand licensing that binds cigarette manufacturers to register their brand before launching that into the market.

The law was introduced to discourage illegitimate brands from entering the market. However, the implementation of the law is very weak, and still, more than 150 unregistered brands belonging to local tobacco manufacturers are being openly sold in the market. Only 16 cigarette brands have applied for registration so far, as disclosed by the Pakistan Tobacco Company (PTC) representative.

In addition, the industry representatives said that they had also asked FBR to increase advance tax on green leaf threshing processing (GLTP) units in next year’s budget 2022-23.

“PTI regime in 2018 had increased the advance withholding tax (AWT) from Rs. 10 per kg to Rs. 300 per kg through supplementary budget, but the decision was reversed after the lobbying of local influential Tobacco players in budget 2019-20 citing the reason that this tax had been imposed on tobacco farmers”, he added.

On the other hand, the multinational tobacco companies have a point of view that this withholding tax was in adjustable mode and was slapped on manufacturers, which had nothing to do with farmers.

Currently, there are 11 GLTP units located in parts of Khyber Pakhtunkhwa, and the imposition of Rs. 300 per kg AWT could make illicit business unviable, PTC representative told.

We can confirm that if the government imposed an advance tax of Rs. 300 per kg on GLTP units in the upcoming budget, the share of illicit cigarettes will drastically slash down from 40 percent, equivalent to Rs. 70 billion, to just 20 percent with no time.

He further said that Oxford Economics, PWV, IPSOS, and Institute for Public Opinion Research (IPOR) estimated that the share of illicit cigarettes in Pakistan ranged between 37.6 percent and 40 percent. It demonstrated that over 180 brands violated minimum tax and minimum price, causing Rs. 80 billion annual loss to the national exchequer.

More than 200 local illicit cigarette brands sold between Rs. 20 and Rs. 40, whereas the mandated minimum price was Rs. 62.76, inclusive of a minimum tax per pack of Rs. 42.12, he also disclosed.

He also said that PTC is going to pay over Rs. 150 billion tax in the national exchequer during the outgoing fiscal year 2021-22, whereas the local industry is not paying any tax.

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