Taxing problem in Pakistan

Multinational tobacco companies are flourishing at the expense of Pakistan’s economic interests because of flaws in the country’s taxation mechanism and an absence of suitable laws to regulate the way these companies function, according to a story in Pakistan Today quoting ‘sources’.
Looking at multinational companies more widely, the story said that a lack of governmental oversight and ineffective regulatory checks had allowed the Pakistan operations of these companies to exploit the existing situation and enjoy ‘mega corporate benefits beyond imagination’.
In recent years, the story said, Philip Morris (Pakistan) Limited (PMPKL) had used losses of millions of rupees to justify the large-scale downsizing of its staff and the closure of its factories.
However, after the introduction of a ‘highly controversial’ third-tier tax slab by the former government in the fiscal year 2017-18, PMPKL had shown a profit of Rs724.14 million in the first half of this year ending on June 30, 2018.
During the same period of last year, PMPKL had recorded a loss of Rs463.45 million.
The story said that the introduction of the third-tier tax slab had benefitted the tobacco companies without doing any good to national revenues, though it quoted a Philip Morris International results commentary that seemed to dispute this.
According to the story, a PMI quarterly report for the third quarter ended September 30, the company’s gross turnover increased by 25 percent on that of the same period of 2017, mainly because of the normalization of trade inventory movements and partial recovery of sales volumes after the introduction of the third excise tax tier in the 2017/18 federal budget.
The company had recorded an operating profit before tax of Rs1,194 million for the nine months period ended September 30, up from Rs391 million for the same period of 2017.
During the period ended September 30, the company’s contribution to the national exchequer, in respect of excise duty, sales tax, and other government levies, was Rs13,648 million, up from Rs11,429 million during the same period of 2017. PMI was quoted as saying that the third excise tax tier had provided a wider and more sustainable base for the growth of government revenues, which would have otherwise seen a significant decline.
The introduction of the third excise tier was said to have arrested the growth of non-tax paid cigarette segment by narrowing the price gap between tax paid and non-tax paid cigarettes.
However, the Finance Supplementary Bill (September 18, 2018) had imposed a 46 percent increase in the excise rates for the third excise tier, which had led to a tax-driven price increase that had again widened the price gap between the tax paid and non-tax paid cigarettes.