Identification of smuggled cigarette packs: Govt considering pasting stamps

The government is working on a proposal to paste stamps on cigarette packs to identify smuggled/non-duty paid packets for checking tax evasion, counterfeiting and smuggling.

Sources told Business Recorder here that the Tax Reform Co-ordination Group (TRCG) of the Federal Board of Revenue (FBR) will discuss the issue of stamps on cigarette packs to help identify smuggled/non-excise paid cigarettes packs. The 7th meeting of the TRGC would now be convened at Regional Tax Office (RTO) Karachi on December 23, 2011. The revised agenda of the TRGC meeting circulated by the FBR on Tuesday includes proposal of tax stamping on cigarette packets.

When contacted, a tax expert explained that the government can introduce a scheme to affix quality assurance stamp on every packet of cigarettes to check illicit/counterfeit production of cigarettes. In the past, the FBR had done working on the concept of tax stamping on cigarettes during the tenure of ex-FBR Member Sales Tax Shahid Ahmed. At that time, the FBR had analysed the concept of tax stamping in Turkey, Malaysia and Bangladesh. Tax authorities worked on the concept of 'excise duty stamps' for the cigarettes units for checking tax evasion, counterfeiting and smuggling.

In the past, tax officials had studied different international tax models for controlling excise duty evasion in cigarette industry. In Bangladesh, the concept of tax stamping and band rolling of cigarettes was successful due to support of government and political will. Tax authorities of Bangladesh did not hesitate to conduct raids on shops selling smuggled or non-duty paid cigarettes. Turkey and Malaysia are not facing problems of tax evasion, but their main concern is smuggling and counterfeiting of cigarettes. Pakistani tax officials had visited these countries to examine the operations of the cigarettes industry. It was observed that tax stamping has been fully enforced in these countries, they said.

On the other hand, Pakistan is facing problems of enforcement and compliance, even if 'tax stamping' is introduced on the cigarettes packs. Leading manufacturers wanted level playing field, as the smuggled cigarettes are being sold as comparatively less price against the duty paid cigarette.

The expert said that tax stamping is the most appropriate way to check the illicit trade. It is a kind of a ticket, which could be pasted on each pack of cigarette. The idea is to differentiate between the duty paid and non-duty paid cigarettes. Under the excise laws, the board is legally empowered to restrict the cigarette and beverage manufacturers to affix 'excise duty stamp' on each item to be sold in the market.

Secondly, another option is to paste a 'tax marker' on each pack of cigarette. Tax marker is a 'dot spot' containing specialised ink. A special gun is used to paste it on cigarette pack. It is not simply a dot, as it has a special code, which could be seen through special way.

Thirdly, another option is to use band rolling on cigarette packs, as the provision is available in both sales tax and excise laws. It is a special kind of strip, which covers the whole cigarette pack. However, the project can not be implemented without approval of the Printing Corporation of Pakistan.

Fourthly, a holographic sticker could be prepared from 'fraud-proof paper' with graphic security features. The stamp, which looks like a sophisticated small size currency note, has holographic features. Just like a hologram, you can see different dimensions of the stamp, which is impossible to copy through counterfeiting. Three different types of security inks are being used in these stamps, tax expert added.