recorder report

ISLAMABAD: Senate Standing Committee on Finance Thursday recommended withdrawal of Health Levy on cigarettes at Rs10 per kg from manufacturers at time of tobacco purchase.

After detailed discussion on the proposed levy by Senate Standing Committee on Finance, Chairman of the Committee Senator Farooq Hamid Naek recommended withdrawal of the said levy due to legal complications.

It has been brought to the notice of the committee that the Health Levy may face legal issues or legal implications as it is neither a federal tax of FBR nor it is a levy governed under a separate law.

Special Secretary Ministry of Finance Noor Ahmed said the Health Levy proposed through Finance Bill 2018 was not a fiscal measure and it had been proposed in view of the objective of discouraging smoking in the country. The health levy is imposed on the proposal of Health Ministry.

FBR Chairman Tariq Pasha responded that Health Levy on cigarettes at Rs10 tobacco on per kg tobacco was not an FBR tax. The amount collected would directly go into the account of Finance Division. “We can act as revenue collecting agency, but the amount would not be deposited into the head of FBR accounts.”

To a query, the FBR chairman categorically said there was no convenience between the FBR and multinational cigarette manufacturing companies on the third tier.

Former Federal Secretary Finance Dr Waqar Masood Khan informed the committee that it was not clear whether the Health Levy was a federal tax or levy. “What kind of tax is Health Tax? Is it an FBR tax or levy?” he questioned Ministry of Finance. If the petroleum levy has been introduced through a separate law, the Health Levy could only be imposed through health levy rules or a special law. Dr Waqar referred to the legal implications of gas infrastructure development cess (GIDC). The objective of revenue could be generated from the FBR, he added.

The representative of the Law and Justice Division observed that the issue of Health Tax was raised during the vetting of the Finance Bill 2018. When the Law Division and FBR were engaged in finalizing budget, the legal issue was raised about the status of the Health Tax and mechanism of its introduction.

This levy was required to be proposed through an independent law as it is not an FBR tax. Health Levy was required to be made as an independent tax or levy, the Law Division official added. FBR Chairman Tariq Pasha informed the committee that the documented cigarette industry was expected to contribute Rs92-93 billion in 2017-18 as compared to Rs82 billion in previous fiscal year. Due to introduction of third tier of Federal excise Duty (FED) on cigarettes, the revenue collection from the cigarettes has witnessed substantial increase. At the same time, the sale of cigarettes manufactured by the legitimate sector also increased.

The FBR chairman said the matter of third tier was taken to the ombudsman who declared that the measure was taken through an act of the Parliament and there is no administrative mal-administration in the matter of introducing third tier on cigarettes. The matter is also sub judice in the Peshawar High Court (PHC).

If the rate of duty is substantially increased on any item and there is no effective enforcement, the smuggling of such item would increase, Pasha explained.

Senator Dilawar Khan said the third tier on cigarettes had made the item unattractive for the local industry and is benefiting the multinational companies. Due to third tier, the local brands of cigarettes have been made unattractive.

He said the government had introduced a new tax i.e. Health Levy on cigarettes at the rate of Rs10 per kg from manufacturers at time of purchasing tobacco and retained third tier of federal excise duty (FED) on cigarettes with enhanced rate of FED on all three slabs of the FED. Besides, tobacco was already subjected to provincial taxes and five percent withholding tax having accumulative impact of Rs38 per kg on tobacco. FBR Senior Member Tax Policy Inland Revenue Dr Muhammad Iqbal informed the committee that the FBR had levied five percent adjustable advance tax on the purchase value of tobacco from manufacturers of cigarettes (excluding farmers) from July 1, 2017. The tax is adjustable but the levy was not imposed on farmers and is not an additional tax. It is estimated that the FBR would be able to collect Rs700 million from adjustable tax during 2017-18. He clarified that the tax had not been imposed on growers.