Conflict of interest questions raised over Senate Committee on Tobacco

According to a notification issued by the Senate Secretariat, the second meeting of special committee on decline in tax collection from tobacco sector would be held on September 12 at the Parliament House. The committee has been set up with the mandate to ascertain reasons for decline in tax collection from the tobacco sector, and its maiden session was held earlier in August.

The committee is headed by Senator Kalsoom Parveen, while other members include Senators Dilawar Khan, Mushahid Hussain Sayed, Ch Tanveer Khan, Sherry Rehman, Dr Ashok, Anwarul Haq, Azam Swati, Muhammad Ali Saif, Maulana Ghafoor Haideri, Shafiq Tareen and Hidayat Ullah.

Experts have criticized the inclusion of a particular senator in the committee as he owns a cigarette manufacturing unit himself. Based on this conflict of interest, doubts have been raised over his impartiality in analyzing and investigating revenue trends in the tobacco sector. It is worth noting that the same senator is also a member of Senate Standing Committee on Health and Finance as well as Commerce.

Further, the quality of committee investigation and recommendations could also question as it does not include any sector specialist, representatives of multinational cigarette manufacturing companies, NGOs, chartered accountant’s/tax experts, FBR officials or private sector experts on the tobacco sector. Fiscal experts are also puzzled by the logic of constituting a special committee on decline, if any, in tax collection from only the tobacco sector. Instead, a general committee to look into various sectors and their revenue trends should have been formed so that a more holistic approach could have been taken.

In the first meeting, the Federal Board of Revenue (FBR) had informed the special parliamentary committee that third tier of excise duty on cigarettes and unprecedented enforcement drive against illicit manufacturers had not only helped compliant tobacco sector regain its lost volume, but also resulted in revenue growth of around 20 percent to Rs 88.5 billion during 2017-18 against Rs 74.1 billion collected during the same period last fiscal year.

The revenues from tobacco industry stood at Rs 88.40 billion in financial year 2013-14, Rs 102.88 billion in 2014-15 and Rs 114.19 billion in 2015-16. Thereafter, a sharp decline in revenue to Rs 83.69 billion was registered for the first time in many years in 2016-17 as most smokers with low disposable income merely shifted their consumption from tax paid cigarettes to cheap, readily available tax evaded cigarettes being manufactured in Mardan and Azad Jammu & Kashmir (AJ&K). The tax evaded sector had mushroomed to about 40 percent of the market size in 2016.

According to a tax expert, it is estimated that tax collections from leading cigarette manufacturers can climb up to Rs 120 billion in the next two years if third tier of federal excise duty and enforcement against illicit cigarettes continue with full force.

 

 

 

In the upcoming meeting, the FBR is expected to give details of the breakup of taxes paid by all cigarette manufacturers. Previously, the FBR had updated the committee that two major multinational companies contribute almost 98% of tax revenues from tobacco industry.

 

 

 

The FBR will also be presenting all details including names of owners of cigarette manufacturers, details of factories, raids conducted by tax department and arrests made by them in its crackdown against illicit cigarette trade.

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