Cigarette industry asks govt to curtail illicit brands

In their budget proposals to the Federal Board of Revenue (FBR), the three main tobacco companies have asked it to increase the advance tax from Rs10 to Rs300 per kilogramme on the processed tobacco – a key raw material for cigarette manufacturing.

Pakistan Tobacco Company Senior Regulatory Affairs Manager Noor Aftab briefed the media on Monday that the share of illicit cigarettes had increased up to 40% in Pakistan as per surveys and research of international organisations.

He said that it was alarming as the illicit cigarettes were evading taxes, and there was no quality check on the contents of these cigarettes, which were very harmful for consumers.

He underlined that the regulated industry had suggested that the government could enhance its revenues and help reduce health risks for smokers by bringing the illicit industry under the tax net.

The budget proposals called on the FBR to implement an advance tax of Rs300 per kg on Green Leaf Threshing (GLT) units. There were only 11 GLT units across Pakistan, which were the source of basic raw material for tobacco manufacturers, and in the Finance Act 2019 the advance tax of Rs10 per kg was imposed on tobacco purchase.

In 2018-19, he recalled that it was increased to Rs300 per kg and as a result the cost of tobacco purchase by the illegal cigarette makers increased manifold.

“But the lobby of illicit cigarette manufacturers got it reversed to Rs10 per kg last year, which facilitated the unbranded and illegally operating cigarette making units,” Aftab said.

It was decided with the FBR earlier that the tax would eventually be raised to Rs500 per kg, which would have no impact on the farmers or GLT units, and the buyers of processed and shredded tobacco would pay the tax, he added.

The industry has contributed the highest-ever revenue during the last two years, as revenues jumped from Rs117 billion in 2019-20 to Rs134 billion in 2020-21. Revenue in 2021-22 has been estimated at around Rs150 billion.

The budget proposals further highlighted that all existing and new cigarette manufacturers must be registered as an “independent brand” under the FBR’s Sales Tax General Order.

However, out of 211 brands, only 16 have applied for a licence, while the remaining 195 brands have not yet been registered with the FBR.