Tax evasion in cigarette industry reaches shocking levels

cigarettes ISLAMABAD: Government has faced a revenue loss of Rs 45 billion during the last six years on account of tax evasion, smuggling and counterfeiting in cigarette industry due to failure of government’s authorities in taking concrete steps.

According to industrial data, government had to face a revenue loss of Rs 7.5 billion in the current year, Rs 6.5 billion in 2009, Rs 6 billion in 2008, Rs 5.59 billion in 2007, Rs 5.48 billion in 2006 and Rs 4.1 billion in 2005 on account of tax evasion.

On the other hand, due to counterfeiting in cigarette industry, the government had to bear a revenue loss of Rs 0.5 billion in the current fiscal year, Rs 1 billion in 2009, Rs 0.25 billion in 2008, Rs 0.24 billion in 2007, Rs 0.10 billion in 2006 and Rs 0.48 billion in 2005.

Due to smuggling, government had to swallow a bitter pill of revenue loss amounting to Rs 1.5 Billion in the current year, Rs 1.5 billion in 2009, Rs 1.22 billion in 2008, Rs 1.34 billion in 2007, Rs 1.22 billion in 2006 and Rs 1.4 billion in 2005.

Industry sources said that government has failed to take practical measures to halt tax evasion, counterfeiting and smuggling in cigarette industry, which is resulting in loss of billion of rupees to exchequer.

A large number of factories are engaged in manufacturing fake cigarettes in areas of Khyber Pakhtunkhwa including tribal areas, Azad Kashmir, Sargodha, Okara and Bahawalangar but government authorities seem reluctant to take action against them.

Government had planned to set up raid teams to initiate action against tax evasion, counterfeiting and smuggling in cigarette industry. “But plan is yet to be implemented due to which tax evaders and smugglers are busy in minting money,” sources lamented.

“On the other hand, the Federal Board of Revenue (FBR) is facing immense pressure to reduce the Federal Excise Duty (FED) from Rs 1 to 30 paisa per filter rod on cigarettes,” sources maintained.

Earlier, the FBR had imposed Federal Excise Duty of Rs 1 per filter rod on cigarettes, which is adjustable, with a view to realising revenue on sale of filter rods from unregistered and illicit manufacturers of cigarettes and to document the economy.

Not only this, the board had also made it binding on the cigarette manufacturers to compile comprehensive production and sales data of filter rods to eliminate federal excise duty evasion.

Sources said the move had been widely hailed by the business community and cigarette manufacturers registered in the tax net given the fact that it had placed a permanent check on whether the filter rod manufacturers were accurately maintaining the data of their sales.

The tax leakages in the cigarette manufacturing industry had been particularly plugged considerably after the cigarette manufacturers were also called upon to provide data, including raw material imported/purchased, number of filter rods manufactured, total number of filter rods available for consumption in cigarette manufacturing, filter rods sold in market, FED on filter rods sold and other information specified in the concerned registers.


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