An advertisement in yesterday’s newspapers regarding massive tax evasion by the manufacturers of cigarettes smoked by low-income group coincided with an order the same day placed by the Presidency to a tobacco company for tax-exempt 500 packets of a sophisticated brand.
While the manufacturers of the low brands are evading taxes by retailing at the prices below than that printed on the packets, the rulers are causing loss to revenue by enjoying federal excise duty exemption on the cigarettes consumed by them, their friends and relatives.
It is not only the Presidency receiving tax-free cigarettes; several other holders of constitutional offices, members of their family and guests can avail this facility, according to Federal Excise Rules 2005.
In addition to their personal consumption, they are also presented as presents to near and dear ones as ‘privileged packets.’ Although tax-exemption is limited to a few power houses, they can order unlimited number of cigarette packets using this facility.
Federal excise duty is waived off if supplied for consumption to “the President of Pakistan, the President of Azad Jammu & Kashmir and the Governors of the Provinces, members of their families and guests provided that the cigarettes are manufactured and supplied on the specific written orders of the competent official authority and the cigarettes and their packets are special-crested for the respective privileged House,” reads clause 4 (iii) of the third schedule dealing with the exemptions.
What necessitated this waiver on cigarette consumption when the ruling elite already avail many tax exemptions remains a question as background discussions with tobacco suppliers and tax authorities failed to understand the wisdom behind this elite facility.
Interviews with tobacco manufacturers suggest they are bound to follow the law as tax exemption is granted by the state and the companies don’t have to bear any burden of this facility.
A high-brand tobacco manufacturer sponsored an advertisement in Wednesday’s newspaper with a headline: ‘Tobacco tax evasion.’
Without naming a particular manufacturer, however, hinting towards low-brand cigarettes, the advertisement said that they are ‘depriving Pakistan of billions that could be spent on the development of the nation as the selling price is way below the government mandated duties and taxes.’
Federal Board of Revenue officials agreed that tax evasion at large scale is being carried out by such manufacturers.
Ironically, the government is running a campaign to discourage smoking on one side and giving exemption to the constitutional office holders to continue smoking on the other.
Tobacco is one of the major revenue sources for the government as an estimated Rs120 billion is collected under this head. Again, tax evasion in this sector is rampant; mostly carried out through local brands available on cheap rates.
One brand generally consumed by the low income group, for example, has Rs34.39 tax duty and the printed price on its packet has been described Rs55 but it’s available in Rs30. Another brand displays a price of Rs45 but is sold at Rs20.
The brands notorious for tax evasion are less known in elite circles but in hot supply among poor sections of the society. Included among them are Kisan, Bridge, Cricket, Marvi and Winster. Federal Board of Revenue has collected video proof about their sale at rates lower than that mentioned on the packets and written to provincial authorities for launching crackdown against them.
“The market share of these tax-evaded brands is increasing at the expense of the tax compliant manufacturers,” said an FBR official dealing with this trade.
Asked why FBR is not setting example by withdrawing exemptions granted to the top authorities, the official said it is the duty of policy makers who themselves are enjoying this facility.
