Islamabad: Philip Morris Pakistan, a tobacco company, set the retail price of one of its brands lower than the established rate of Tier-1 Federal Excise Duty (FED), which could increase the possibility of accusations of tax fraud.
The corporation produced the price list for its cigarette brands on August 9 and promoted the price of each brand, including the sales tax, top official sources informed on Friday. According to Schedule 1 Item No. 9 of the Federal Excise Act of 2005, the Federal Excise Duty (FED) on Tier 1 cigarette packages is Rs330. The retail price listed for this brand, however, is less than the relevant FED, as is clear from the advertisement.
The printed retail price is not only less than the applicable duty, but also does not include any other fees, such as the cost of manufacturing and other applicable taxes, in accordance with section 12 of the Federal Excise Act of 2005. Given the aforementioned laws, it is claimed that the stated retail price violates the minimum FED as specified by the law and that the cost of production has not been added to the retail price. This allegedly results in both FED tax evasion and sales tax avoidance because increased retail prices attract greater sales taxes, which are levied at an 18% rate.
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One official claimed that the same firm had previously contested the FBR tax requests, but that the tribunal ultimately decided in the company’s favour.
According to the sources, the corporation tried to sell this brand for less than Rs400 per package and would pay the predetermined FED out of its own pocket. Sources said that a lower price fix would result in less GST (18% GST) being collected.
The FBR may continue to set the minimum retail price in order to levy and collect taxes, according to the Pakistani Competition Commission (CCP).
With effect from July 1, 2009, free goods, cash rebates, free samples, discounts, or goods below the market value shall not be given or offered for the purpose of advertising tobacco or tobacco products to tobacco consumers in order to generate sales or promote smoking, according to a notice from the Ministry of Health issued under the Prohibition of Smoking and Protection of Non-Smokers Health Ordinance 2002. The company’s spokesperson responded to a question by saying that the brand’s retail price was established in accordance with the Federal Excise Act’s rules, and that the company pays excise duty at the rates listed under serial number 9 in the First Schedule of the Federal Excise Act, which are determined by the crossover between two excise rates as described in the Federal Excise Act.
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According to the spokesman, Excise Duty is released in accordance with the tax authorities, who in the case of the brand in issue are based on Tier 1/Higher Excise Tier.
In accordance with Federal Excise General Order 3 of 2003, the spokesperson asserted, the necessary approvals are obtained from the tax authority to clear stock with old printed prices, and revised prices are published in local newspapers mentioning Retail Price (excl. Sales tax), Sales tax, and Total printed pack Price.
According to the spokesman, the company strictly abides by all rules and regulations and is committed to conducting business in accordance with local laws.
