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Protecting taxpayers: Experts wants FED structure for cigarettes unchanged

Protecting taxpayers: Experts wants FED structure for cigarettes unchanged

ISLAMABAD: Experts has suggested to the government not to change the federal excise duty (FED) structure on cigarettes under Federal Excise Act in the budget (2014-15) to avoid its negative implication on registered taxpaying industry.

Experts pointed out that at this stage when the government was struggling to achieve revenue targets, illicit trade was on the rise, causing revenue loss in billions. Experimenting with the excise structure or introducing steep excise hike as proposed by WHO will not only undermine government’s fiscal objectives, but will make legitimate taxpayers vulnerable.

They said that in the last fiscal budget, the government revolutionised the excise structure for cigarettes by adopting a two-tier specific system. Despite a slow start, contribution to the national exchequer by the legitimate tobacco industry, under the reformed structure, may surpass the projected target for the current fiscal year. A fully specific excise system not only provides predictability to government revenue but also gives it the independence to manage excise increases.

They were of the view that the prices were different from country to country. Levying 70 percent on a pack of cigarettes sold in one country at $0.3 yields only $0.21 which equals to just 10 percent tax incidence in another market where a pack sells at $2.10.

In Pakistan, steep excise increase over and above the inflation rate is making the legitimate taxpaying industry incompatible compared to the illicit sector. According to a September 2013 study by the International Tax and Investment Center and Oxford Economics on illicit tobacco trade, in 2012, 25.4 percent of cigarettes consumed in Pakistan were illicit, causing the government approximately Rs26.9 billion ($275 million) revenue loss.