Govt slaps additional Rs36 billion in taxes on cigarettes

• Taxes slapped on cigarettes, tobacco processsing to revive IMF programme.
• Prices of cigarettes of tier-1 brands may go up by Rs20 to Rs30 per packet.
• Govt, in major move, has also waived fixed tax on small traders and retailers.

ISLAMABAD: The federal government Monday promulgated an ordinance to slap an additional Rs36 billion tax on cigarettes, Rs2 billion on tobacco processing, and reduced levies on transport vehicles — to fetch an additional Rs38 billion in taxes.

The prices of cigarettes of tier-1 brands may go up by Rs20 to Rs30 per packet, while for tier-2 brands the rates will go up by Rs10 per packet.

On tobacco processing, the government has jacked up advance federal excise duty (FED) tax from Rs10 per kg to Rs390 per kg, which will be adjustable.

The government envisages the collection of Rs2 billion through this measure.

Just ahead of the International Monetary Fund's (IMF) executive board meeting scheduled to be held in Washington on August 29, Pakistan has moved ahead to slap taxes on cigarettes and tobacco processing to secure the revival of stalled programme and release of $1.17 billion tranche under augmented $7 billion extended fund facility (EFF).

President Arif Alvi signed Tax Laws Second Amendment Ordinance 2022. The government, in a major move, has also waived fixed tax on small traders and retailers.

The government slashed the tax burden on retailers and brought down the tax collection target from Rs42 billion to Rs27 billion by doling out incentives of Rs15 billion to traders, who are considered the major constituency of the ruling PML-N.

The government did not slap regulatory duty on luxury items as it will be imposed through SRO after getting approval from tariff board and then the ECC might grant its assent.

Through RDs, the FBR plans to generate Rs5 to Rs14 billion in tax revenue, so in totality, the revenue impact might cross Rs50-52 billion.

“We have taken additional taxation measures of Rs38 billion and provided incentives/tax relief to the tune of Rs19 billion so the net additional revenues will fetch over Rs19 billion during the current fiscal year,” FBR Chairman Asim Ahmed told The News when asked about the net impact of taxation measures.

The fixed tax scheme introduced for retailers (other than tier-I retailers) on commercial electricity connection has been withdrawn with effect from July 1, 2022, and the previous regime (prevailing prior to Finance Act 2022) has been restored through the promulgation of this ordinance.

The federal government has been empowered to make any future scheme and determine its modalities, including tax rate or amount, and the date when it will be implemented for retailers to collect tax on commercial connections.

Till the new scheme is announced by the federal government, the previous regime prior to the Finance Act of 2022 will remain in force. The income tax rates for retailers will also be revised for retailers/small traders as planned by the government at the moment.

Interestingly, the government did not take any taxation measures on sugar bound beverages industry which is also injurious to the health sector.

The ordinance states that the tax shall be charged from retailers, other than those falling in tier-1, through their monthly electricity bills, at the rate of 5% where the monthly bill amount does not exceed Rs20,000 and at the rate of seven and a half percent where the monthly bill amount exceeds the aforesaid amount, and the electricity supplier shall deposit the amount so collected directly without adjusting against his input tax.

The FED on un-manufactured tobacco has been enhanced from Rs10 per kg to Rs390 per kg, while the FED on locally manufactured cigarettes has been enhanced from Rs5,900/1m000 sticks to Rs6,500/1,000 sticks for tier-1 and from Rs1,850/1,000 sticks to Rs2,050/1,000 sticks for tier-2 cigarettes.

The advance tax rates on passenger transport vehicles have been rationalised. The advance tax has been slashed down. For non-air-conditioned, transport vehicles having four or more seats but less than 10 persons, the tax rate is reduced from Rs500 to Rs200 per seat, for the air-conditioned vehicle the tax rate is reduced from Rs1,000 to Rs375 per seat.

For non-air-conditioned vehicles having 20 seats, the tax rate is reduced from Rs1,500 to Rs500 per seat. For air-conditioned transport vehicles, the tax rate was reduced from Rs2,000 to Rs750 per seat.

For non-air-conditioned vehicles having more than 20 seats, the tax rate is reduced from Rs2,500 to Rs1,000 per seat. For air-conditioned transport vehicles, the tax rate is reduced from Rs 4,000 to Rs 1,500 per seat on annual basis.

Passenger transport vehicles, goods transport vehicles, and vehicles of foreign diplomats and foreign diplomatic missions have been exempted from the levy of Capital Value Tax.

The exemption on allowance and perquisite paid or allowed outside Pakistan by the government to its citizen for services rendered outside Pakistan, withdrawn earlier through Finance Act, 2022 has been restored with effect from July 1, 2022.

The exemption on income derived by Kuwait Foreign Trading Contracting and Investment Company or Kuwait Investment Authority being dividend of the Pak-Kuwait Investment Company in Pakistan has been restored as per the sovereign agreement.

The subsidy provided by the federal or provincial government on natural gas to consumers, including RLNG, has been granted sales tax exemption.

The sales tax exemption available to the local supply of single cylinder agriculture diesel engines of 3 to 36 HP, which was withdrawn vide Finance Supplementary Act, 2022, has been restored.