The federal government may cut tax rates on low-cost cigarettes but will increase the levy on premium brands in the next budget and it also aims to raise higher-income income tax liabilities.
The tax proposals also included imposing 17 percent general sales tax (GST) on three-dozen more consumer goods at market prices while shifting away from calculating sales tax at factory prices, said sources in the Federal Revenue Board (FBR).
These proposals are likely to poorly affect people’s disposable income, particularly the wage-earning class, which has been facing the brunt of double-digit inflation for the past two years.
Sources informed Pak Revenue that if their on-pack printed retail price exceeded Rs5,965 per thousand cigarettes, the FBR considered raising the federal excise duty (FED) by 24 percent or Rs400 for locally manufactured cigarettes. The current rate is Rs5,200 per 1,000 sticks which can be increased to Rs5,600.
If their on-pack printed retail price did not exceed Rs596 per thousand cigarettes, it was considering reducing the FED by 7.7 percent or Rs400 on locally produced cigarettes. The new FED is Rs1,650, which the FBR plans to cut to Rs1,250 per thousand sticks – the point it was jacked up from a year earlier.
Reducing the duty on low-cost brands is aimed at discouraging tax evasion by small brands and increasing the share of dutiable sticks.
Tax collection from cigarette producers due to FED and sales tax was Rs124 billion in the previous fiscal year, which is expected to go down to Rs116 billion by the end of this fiscal year.
The experts say that the rate increase will boost tax receipts by Rs24bn to Rs140bn by the end of the next fiscal year. The notified minimum selling price for one pack of cigarettes is Rs62.75 which could go up to Rs66 after rate revision.
Still, the smuggled brands are being sold around Rs35 per pack to Rs40, which is even below the notified prices. The informal sector’s market share is said to be 37 percent, which the FBR and the two multinationals believe will fall following the tax rate revision.
There was also a suggestion to increase the tax on each filter rod used in cigarettes, from 75 paisa to Re1, the sources said. Similarly, in the next budget, the government can also slap FED on e-cigarettes at a rate of 100%, or Rs7,500 per 1,000 sticks, whichever is higher.
It also had a proposal to increase taxes on unmanufactured tobacco from Rs10 per kg to Rs500 per kg, which dropped under pressure from the national assembly and senate tobacco growers.
The government is also considering putting educational institutions under the control of a 100% higher withholding tax if the fee is charged by non-Active Taxpayers List individuals.
The initiative could generate additional revenue of Rs4-billion. The withholding tax on capital goods imports could be 1%, 2% on raw material imports by industrialists and 5.5% on finished goods imports by commercial importers.