Tea association proposes lower duties, taxes to curb smuggling

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Branded tea selling companies have proposed that the government lower duties and taxes on the imported commodity as Pakistani consumers were paying fifty
per cent more in prices as compared to other South Asian states, an official source said.
The proposal underlines the fact that tea is a staple drink in Pakistan, often complementing and even replacing meals when consumed with bread. Pakistan has one of the world’s highest tea consumption ratio of 1.1 kg of tea per capita per annum. Tea sells at Pak Rupee equivalent of Rs408 in Bangladesh, Rs400 in India while in Pakistan it sells at Rs605 per kg. The customs duty and sales tax are levied at a rate of Rs251,000 per ton.
Sales tax discrepancy
India has four per cent sales tax on tea and Pakistan has applied full 16 per cent sales tax on tea even though the food products are not under the sales tax regime. At present, the government collects Rs100 per kg in taxes on tea. If duties and taxes are lowered then the price of tea would fall at least by Rs70 per kg, going a long way in controlling inflation.
The higher taxation on tea has resulted in massive decline of legal imports that have dropped to 87,000 tons during the last fiscal year. The local tea industry claims that 110,000 tons of tea is smuggled in the country through the Afghanistan-Pakistan transit trade. Most of the smuggled tea is sold openly, making it easier to adulterate than packed tea. The government earns nothing from the smuggled tea.
Revenue versus imports
Despite decline in legal tea imports over the last few years, revenue has shown consistent increase, the source said, explaining that this was due to devaluation of Pak rupee and increase in prices of raw tea. He said as the yearly revenue targets were met the underlying declining trend went unnoticed. It also leads to a false perception that little is smuggled as government revenues are not impacted. If the government cuts its levies to less than half the present rate, the 110,000 tons of smuggled tea would be brought in the tax net and tax collection amount would remain the same.