ISLAMABAD: A third tier tax on cigarettes is estimated to yield over a billions rupees’ additional revenue, while facilitating companies’ choice in price reduction in addition to curtailing the illegal trade. This transpired from background interviews with industry experts and relevant officials at the Federal Board of Revenue that unanimously considered multi-tier taxation as an effective tool against an ever growing illegal as well as illicit trade of cigarettes. Although certain quarters have gone to the court of law against recent introduction of the third tier tax by the government, officials and experts believe that it has eased down rather than complicating tax paying by the companies. A petitioner who has challenged the tier tax on cigarettes has claimed that it has become difficult for common people to understand the implications. The petitioner also explained that previous to the Finance Bill 2017, there were only two tiers with minimum tax of Rs 74.8 and Rs 32.98 per pack respectively, however, after the Bill, a third tier was introduced with minimum tax at Rs 16 per pack thereby the cigarettes companies were allowed to shift between the tiers whereas in the previous Act, they were not allowed to do so and because of this relaxation by Government, the prices of cigarettes have decreased drastically. However, the officials believe that in the absence of this tier the government has been suffering losses with the two-tier structure. They have estimated that national exchequer had suffered tax revenue loss of over Rs 130 billion due to the exponential increases in non-tax paid cigarette sales over the course of last five years. The minimum Federal Excise Duty and Sales Tax on tier-1 cigarettes was Rs 92.99 per pack whereas for tier-2 cigarettes it was Rs43.45 per pack. Based on this structure, cigarettes falling under tier-2 category could be sold in the price range of Rs 67 to Rs 72 per pack. The non-tax paid local cigarettes on the other were being sold in the market at a per pack price of around Rs 30, lower than the minimum applicable amount of FED and sales tax. The local tax evading cigarette manufacturers complied with all rules prescribed by the government i.e. printing of price, name of manufacturer, printing of graphical health warning etc. however, since these tax evading packs sold much lower prices, this led to a shift in the market as the people started shifting from the legitimate brands to non-tax paying brands. It is pertinent to note that the total cigarette consumption stood stable at 80 billion cigarettes per year, only a shift in volumes was happening over the years. According to the officials, the Government realized that despite increasing the duties on cigarettes, the tobacco consumption was not decreasing. The revenues were falling drastically without any positive development in reduction of consumption. According to the officials, the tax collection on cigarettes dropped from Rs 114 billion to Rs83 billion in one year alone. Therefore it was decided to introduce the third tier of cigarettes along with establishing a minimum selling price, introducing stricter penalties for tax evaders and creation of an enforcement hub, they added. This helped the legitimate manufacturers in pricing their brands at a price point of Rs 44 per pack. Creating awareness through media and at retail outlets, distribution networks led to deterrence in both the demand and supply of these non-tax paid brands. According to the industry sources, this helped in pulling the prices of non-tax paid upwards, compelling them to come in the tax net. Since the legitimate industry was allowed to operate in the third tier, revenues started witnessing an upward trend, the sources added. Published in Daily Times, January 19th 2018.