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Probe against cigarette makers: more clearances reduce overall Q1 sales




  • The Federal Board of Revenue’s (FBR) ongoing investigation against cigarette manufactures revealed that one of the top companies made extra clearances during June 2013, which reduced sales/payment of excise duty during first quarter of 2013-14. 

    Sources told Business Recorder here on Saturday that the Board was probing tax record of multinational cigarette companies for not fulfilling the commitment made in budget (2013-14) for achieving 20 percent growth in FED collection during the current fiscal year. 

    During investigation of the data, tax department has found that extra clearances of the cigarettes have been made during the month of June 2013. Due to more clearances during June 2013, the overall sales/clearances during first quarter of 2013-14 have been reduced. The collection of the federal excise duty during this period correspondingly decreased. 

    Sources said if the company had paid advance federal excise duty (FED) on cigarettes pertaining to July, August and September 2013 in June 2013, this shows that the company will pay less or low FED for the period of July-September 2013 on post-budget slabs of the FED as per Federal Excise Act. In this case, the company would not pay higher FED on new FED slabs notified through Finance Act 2013. It is also being analysed that if the company has paid taxes in advance to the tax department, whether the tax was paid on post-budget FED slabs or new FED slabs announced in budget (2013-14). However, the analysis is underway before reaching some logician conclusion. The FED rates on cigarettes as per Finance Act 2013 are higher as compared to FED rates on cigarettes prior to announcement of budget 2013-14. If the clearance of July-September 2013 has been made on the old rates of FED prior to budget 2013-14, the company has paid FED for July-September 2013 on lower rates as compared to the enhanced or increased rates of the FED as per Finance Act 2013, sources said. 

    The two cigarettes giants had committed with the FBR to show at least 20 percent increase in FED collection following introduction of new FED slabs for different brands of cigarettes. Through Finance Act 2013, the government had revised the FED structure on cigarettes on the basis of FED slabs proposed by the multinational cigarette manufacturing companies. The companies have also committed to make the said growth in revenue collection after incorporation of new FED structure on cigarettes. Sources said that one of the units has shown below 10 percent growth in FED collection against the committed target of 20 percent. 

    Through Finance Act 2013, the First Schedule of the Federal Excise Act 2005 was amended to replace the three tier FED structure with two-tier specific rate structure. According to the revised FED structure, the rate of the FED would be Rs 2,325 per thousand cigarettes where locally produced cigarettes if their on-pack printed retail price exceeds Rs 2,286 per thousand cigarettes. 

    Copyright Business Recorder, 2014

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