The smuggling of tea will be increased due to imposition of standard rate of 16 percent sales tax on the import of tea by the Federal Board of Revenue (FBR), Chairman Pakistan Tea Association (PTA) Hamid Khawaja said while talking to Business Recorder here on Sunday.
Hamid Khawaja urged the FBR to withdraw the decision of 16 percent sales tax on the import of tea.
The FBR has withdrawn the concessionary rate of 5 percent sales tax on tea and imposed standard rate of 16 percent sales on the commodity. Tea manufactures failed to pass on the benefit of major reduction in sales tax to consumers during the last six months.
PTA Chairman appealed authority concerned to withdraw the SRO 153.
Hamid said he would like to correct some facts and bring to light the progress and also obstacles faced by tea industry during period after the budget of 2012-2013.
He said that all of the major brands and the general legal tea trade implemented the reduction in GST immediately. A reduction of Rs 50 to 60 per kg was passed on to the consumer.
He said that between June 2012 and September 2012 international tea prices went up by 10 percent and it was impossible to absorb the effect and hence prices were increased in the end of September 2012. The relief which government gave was completely wiped out as rupee was losing value against US dollar, he said.
Hamid said that Pak rupee has further lost value against US dollar by 3 percent to 4 percent which has again made smuggling more attractive as gap between legal import and smuggling had widened.
He said that during period of July 2012 and February 2013 the import had increased by about 21.7 percent in value. He said, “Kenya Tea Board figures for January 2013 showed an increase for Pakistan by 28 percent and Afghanistan showed negative figures by 34 percent”. He said now in face of GST reverting back to 16 percent is a clear boon to the smuggling.
Hamid said that due to increase the GST the tea industry and consumer will face the following dire consequences.
— Approximately Rs 60 to 75 per kg additional GST burden will fall on the consumer immediately.
— Revenue leakage is about Rs 130 per kg – smuggling cost is Rs 50 non taxpaying smugglers will now have an advantage of at least Rs 80 per kg against the legal trade (Nothing goes in exchequer kitty) and will make importers totally uncompetitive and eat into the market share of legal importers and branded companies like Tapal, Unilever, Vital and Tetley.
— In face of high prices and in order to meet consumer with low income adulterated tea will increase their foot print.
He said that the decision of the FBR of 16 percent sales tax on the import of tea could not help stop smuggling and prices of the commodity will be raised.
He said that tea prices will increase by Rs 75 per kg and public has to bear the burden towards end of the people’s government.
He said that tea traders would be forced to close down their businesses because they were already facing multiple internal and external challenges on economic front.
He said the Federal Board of Revenue should be refrained from issuing of such anti-business SROs any more. There is no doubt in it that the government needs heavy revenue to run its affairs but it should focus on expansion of tax-net instead of raising the rate of existing taxes, he maintained.
PTA has lamented the Federal Board of Revenue (FBR) for arbitrarily and exorbitantly increasing ST.
