LAHORE – Companies manufacturing illegal brands of cigarettes are evading taxes at the retail level and also under the guise of exports, causing huge losses to the national exchequer.
As per the insiders, companies manufacturing and selling illegal cigarettes are also involved in the evasion of advance tax collected on tobacco processing.
“The manufacturers involved in illegal sales declare that tobacco is being bought for exports but the huge quantity purchased without payment of advance tax is being sold in the local market”, said an official.
The government has imposed an advance tax of Rs390 per kg on the purchase of tobacco from green leaf threshing units to monitor the production and sale of illegal cigarettes and bring them into the tax net.
This tax is adjustable and the burden does not fall on the tobacco farmers as it is an advance tax collected from the manufacturers which can be adjusted.
According to Pakistan Tobacco Board statistics, during the financial year 2021-22, a total of 52 cigarette manufacturers bought 22.3 million kgs of tobacco worth 65.2 million US dollars.
The organized industry comprising the top three tax-paying companies bought around 12.39 million kgs of tobacco worth 53.4 million dollars while other 49 manufacturers bought 10 million kgs of tobacco worth 11.8 million dollars.
According to estimates, more than 90% of the tobacco purchased by 49 manufacturers was sold in the form of cigarettes without paying tax in the local market, causing a loss of 4 billion rupees to the national exchequer in advance tax alone.
State Bank of Pakistan tobacco export statistics also show that not all tobacco purchased from green leaf threshing plants is exported.
According to the SBP statistics, during the financial year 2021-22, the export of tobacco and alternative products made from tobacco was 56.9 million dollars.
According to the statistics of Pakistan Tobacco Board, 22.3 million kilograms of tobacco worth 65.2 million dollars were bought for export during this period.
The difference between the Pakistan Tobacco Board and SBP statistics on tobacco exports is almost as much as the tobacco purchased by 49 tobacco manufacturers sold in the domestic market instead of exports.
Companies involved in the illegal sale of cigarettes are committing double tax evasion.
On the one hand, advance tax is being stolen on the purchase of tobacco from green leaf threshing units.
On the other hand, due to non-payment of duties and taxes on the retail sale of cigarettes, the national exchequer is being damaged to the tune of approximately 80 billion rupees annually.
By controlling the tax evasion, Pakistan can control the budget deficit and this valuable money can be spent on providing relief to the people from inflation and improving the infrastructure to speed up the pace of social development.
High taxes and illicit trade of cigarettes affect tobacco farmers
