News Desk
The tax authority seized 58.8 million cigarettes in the first quarter of the fiscal year 2023-24, as part of its crackdown on the illicit tobacco sector, but failed to prosecute or imprison any of the offenders who are evading taxes and causing losses to the national exchequer.
The Federal Board of Revenue (FBR) had conducted 74 enforcement actions, including seizure with confiscation, against illegal cigarette manufacturers and smugglers from July to September. Though, none of these actions has resulted in any convictions or penalties for the tax evaders.
The formal tobacco sector, which consists of two major companies operating in Pakistan, has contributed Rs62.9 billion in taxes in the first three months of the fiscal year 2023-24, including Rs13.7 billion in general sales tax and Rs49.2 billion in federal excise duty. The illicit tobacco sector, which accounts for an estimated 81 billion sticks of production per year, has been causing massive losses to the national treasury. The accumulated losses from illegal cigarettes have exceeded the revenue collection made by the formal sector, according to industry officials.
The FBR has failed to take stern actions against the illicit tobacco sector, such as making arrests and initiating prosecutions, despite having a track and trace system to monitor the movement of tobacco products. The further details of the FBR show that the tax machinery undertook 1447 seizures against the illegitimate tobacco sector in the last financial year and seized 303.5 million sticks. The FBR has developed a special link on its website under the title of Track and Trace System in order to share updates on it on daily basis. The system, which was launched in 2020, is supposed to ensure that all tobacco products are affixed with tax stamps and barcodes to prevent tax evasion and smuggling.
Both the FBR’s Inland Revenue Enforcement Network (IREN) and Customs have undertaken enforcement steps against the illegitimate tobacco sector during the last financial year from July 1, 2022 to June 30, 2023. Out of total 1447 enforcement actions of the FBR, there were 247 seizure actions undertaken by IREN of IRS and 1170 actions by Customs department. Total seized sticks stood at 303.5 million out of which 209 million sticks were seized by IREN and 94.5 million sticks by the Customs department.
The tax authorities have also been unable to curb the influx of smuggled cigarettes from neighboring countries, especially Afghanistan and Iran. According to the official data, the customs department seized 94.5 million sticks of smuggled cigarettes in the last fiscal year, while the inland revenue enforcement network seized 209 million sticks of domestic illicit cigarettes. The largest seizure of smuggled cigarettes was made in Balochistan, where customs intelligence confiscated 4.28 million sticks of foreign brands, worth Rs114.2 million, in the last fiscal year. In Sindh, eight operations led to the seizure of 1.42 million sticks of high-end brands, worth Rs69.7 million. In Punjab, 1.29 million sticks of smuggled cigarettes, worth Rs75.3 million, were seized. In Khyber Pakhtunkhwa, 1.15 million sticks of smuggled cigarettes, worth Rs43.9 million, were confiscated.
The FBR has been facing criticism from various quarters, including the tobacco industry, civil society, and the media, for its inability to effectively regulate the tobacco sector and collect the due taxes. The FBR has also been accused of being influenced by the illicit tobacco lobby, which allegedly benefits from the low enforcement and weak legislation. But the FBR has so far remained unable to undertake any major enforcement actions against tax evaded cigarettes due to which the illegitimate tobacco has become a lucrative business and now it is projected that its revenues would exceed those of the tax paying cigarettes in the current fiscal year.
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