As Pakistan continues to lose billions of rupees every year due to illicit tobacco trade, high-handedness of multinational companies and loopholes in the system, a local firm has proposed a plan to generate upto Rs 260 billion revenue without increasing the consumption and rescue the struggling local industry.
The proposal has been submitted to Federal Board of Revenue (FBR) which is in the process of making national budget amid coronavirus pandemic which has shattered the country’s fragile economy. “We anticipate that our proposal has the potential to substantially increase duty paid volume (whilst not increasing consumption) and Federal Excise Duty (FED) revenue to reach Rs 260bn annually at the end of the programme,” said the proposal based on a detailed study about key issues related to the industry.
The seven-year plan will not only help a steady increase of revenue but also provide a breathing space for the local tobacco companies whose competitiveness is fast eroding, according to the proposal.
It has been recommended in the proposal that a multi-stakeholder ‘Illicit Trade Enforcement Board’ is established consistent with best practice from overseas (notably Australia, Canada and the United Kingdom). About major factors responsible for suboptimal government revenue that has the local firms and brands out of the competition, a three-tier structure and illicit tobacco trade which fluctuates with NGO’s estimates of 10% of the market to MNC’s estimates of 33% of the market were identified. To address the issues, the government has been proposed to make a temporary change to the current FED structure by splitting the current second tier into a mid-price tier and a local-price tier. Over the course of the seven-year period, the minimum price and FED rate of the local-price tier will rise more sharply than that of higher tiers, thus achieving a high degree of convergence, the proposal said.
While talking about elimination of illicit trade from the tobacco market, the proposal said that the FBR should produce and validate an accurate register of the domestic manufacturing locations, strict enforcement of license criteria to operate machinery, require the machinery owners/operators to accurately report monthly quantities produced of each brand as well as the quantaties sold ex-factor to distribution entities.
In order to curb illegal import, the proposal said there should be designation of a limited number of designated import stations for tobacco products. Records of products imported via designated import stations should be kept and compared with the incidence of imported products in retail audit. Discrepancies can then be reported and action taken.
It also recommended FBR to operate a system of surveillance to ensure it has intelligence on the most used illegal import routes so that controls can be strengthened. In addition, it was suggested that FBR should engage with authorities in neighboring countries from where illegal imports originate.
