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Industry warns tax hike to flourish illicit cigarette business

Industry warns tax hike to flourish illicit cigarette business

ISLAMABAD: The tobacco industry has urged the Ministry of Industries and Production against raising tax rate as it will help increase the business of illicit tobacco and non-certified cigarettes.

The industry countered the idea of increasing the tax rate on cigarettes to 70 percent, saying it would make more businesses evade taxes as implementation in Pakistan is weak.

According to the industry’s estimates, illicit cigarettes account for nearly 25.4pc of total cigarettes consumed, which means a yearly loss of Rs26.9 billion in tax revenues.

According to a September 2013 study by the International Tax and Investment Centre and Oxford Economics on illicit tobacco trade, the bulk of illicit cigarette in Pakistan is sold at Rs10-15 a pack, well below the minimum legal price of Rs34.77 a pack set by the government.

“This is because the legitimate taxpaying industry becomes vulnerable and non-competitive to the non-tax paid products,” said Dr Muhammad Idrees of Quaid-e-Azam University’s department of Economics.

The Federal Board of Revenue (FBR) collected Rs70bn as FED on cigarettes in the first 10 months (July-April) of this fiscal year, and the target of Rs87bn on this account for the whole year is visibly achievable.