Government imposes additional Rs 36 billion in taxes on cigarettes

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Cigarette butts in an ashtray in Los Angeles, California, May 31, 2012. — Reuters
  • Taxes imposed on cigarettes, tobacco processing to revive the IMF program.
  • The prices of cigarettes from Tier 1 brands can increase by Rs20 to Rs30 per pack.
  • The government, to a major extent, also removed the fixed tax on small traders and retailers.

ISLAMABAD: The federal government on Monday enacted an order to impose an additional tax of Rs 36 billion on cigarettes, Rs 2 billion on tobacco processing and reduced levies on transport vehicles – to get Rs 38 billion additional taxes.

Cigarette prices for Tier 1 brands may increase by Rs20 to Rs30 per pack, while for Tier 2 brands, tariffs will increase by Rs10 per pack.

With regard to tobacco processing, the government has increased the Federal Advance Excise Tax (FED) from Rs 10 per kg to Rs 390 per kg, which will be adjustable.

The government plans to collect Rs2 billion through this measure.

Just ahead of the International Monetary Fund (IMF) board meeting to be held in Washington on August 29, Pakistan decided to cut taxes on cigarettes and tobacco processing to relaunch a program blocked and the release of a $1.17 billion tranche under the expanded Extended Fund Facility (EFF) of $7 billion.

President Arif Alvi signed the second amendment to the tax laws of 2022. The government, in a major move, also waived the fixed tax on small traders and retailers.

The government has reduced the tax burden on retailers and lowered the tax collection target from Rs 42 billion to Rs 27 billion by distributing incentives of Rs 15 billion to traders, who are considered the main constituency of the PML -N in power.

The government has not imposed regulatory duties on luxury items, as they will be taxed through the SRO after obtaining approval from the tariff commission, and then the ECC may give its assent.

Through the DRs, the RBF expects to generate 5-14 billion rupees in tax revenue, so in total the revenue impact could exceed 50-52 billion rupees.

“We have taken additional tax measures of Rs 38 billion and provided tax incentives/reliefs of Rs 19 billion, so the net incremental income will reach over Rs 19 billion in the current financial year. “, said the president of the FBR, Asim Ahmed. The news questioned about the net impact of tax measures.

The flat-rate tax system introduced for merchants (other than rank I merchants) on professional electrical connection has been abolished as of July 1, 2022, and the previous regime (in force before the 2022 finance law) has been reinstated by the promulgation of this ordinance.

The federal government has been empowered to design any future regime and determine its terms, including the rate or amount of the tax, and the date on which it will be implemented for retailers to collect the trade connection tax. .

Until the new regime is announced by the federal government, the regime prior to the 2022 budget law will remain in force. Retail income tax rates will also be revised for retailers/small traders as planned by the government for the time being.

Interestingly, the government has not taken any tax measures on the sugar-related drink industry, which is also detrimental to the health sector.

The Ordinance stipulates that the tax shall be charged to retailers, other than those under Tier 1, on their monthly electricity bills at the rate of 5% where the amount of the monthly bill does not exceed Rs 20,000 and at the rate seven and a half percent when the amount of the monthly bill exceeds that amount, and the electricity supplier directly deposits the amount thus collected without adjustment to its input tax.

EDF on unmanufactured tobacco has increased from Rs10 per kg to Rs390 per kg, while EDF on locally manufactured cigarettes has increased from Rs5,900/1m000 sticks to Rs6,500/1,000 sticks for Tier 1 and Rs1 , 850/1,000 sticks at Rs2,050/1,000 sticks for Tier 2 cigarettes.

The rates of advance tax on passenger transport vehicles have been streamlined. Withholding tax has been reduced. For non-air-conditioned transport vehicles having four or more seats but less than 10 people, 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 with 20 seats, the tax rate is reduced from Rs1,500 to Rs500 per seat. For air-conditioned transport vehicles, the tax rate has been reduced from Rs2,000 to Rs750 per seat.

For non-air-conditioned vehicles with 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 an annual basis.

Passenger vehicles, goods vehicles, and vehicles of foreign diplomats and foreign diplomatic missions have been exempted from capital value tax levy.

The exemption from allowances and benefits paid or authorized outside Pakistan by the government to its citizen for services performed outside Pakistan, previously withdrawn by the Finance Act 2022, has been reinstated with effect from 1 July 2022.

The exemption of income received by the Kuwait Foreign Trading Contracting and Investment Company or the Kuwait Investment Authority as a dividend from the Pak-Kuwait Investment Company in Pakistan has been reinstated in accordance with the sovereign agreement.

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

The exemption from sales tax enjoyed by the local supply of single-cylinder agricultural diesel engines from 3 to 36 HP, which had been abolished by the complementary finance law of 2022, has been restored.

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