Cigarette manufacturer says sin tax will cut market share

Insists increase in taxes will not reduce cigarette consumption in Pakistan

KARACHI: “Two (cigarette manufacturing) companies, which have 60% market share, pay 98% of the taxes and the remaining, whose market share is 40%, pay only 2% of the taxes. So the ones that are paying (higher) taxes are in loss,” Prime Minister Imran Khan said in a speech he delivered at the end of his government’s first 100 days on November 29, 2018.

The statement raised hopes of tax-paying industrial players that the government was conscious of the grave taxation issues and it would direct its focus to reducing the taxes.

On the contrary, the government is now considering imposing a new tax - sin tax of Rs10 per cigarette packet - which contradicts with its vision of addressing the industrial issues through rationalisation of taxes.

“The new tax will further eat into our market share and increase our losses,” Philip Morris Director Corporate Affairs Khurram Mohammad Qamar said while talking to a group of journalists on Friday.

“The increase in taxes will not reduce the consumption of cigarettes in Pakistan, which remains the ultimate objective of the government,” he suggested. “Instead, it will divert smokers from tax-paid cigarettes to illicit cigarettes.”



Had the taxes discouraged smoking, the company would have no moral grounds for demanding tax reduction from the government, the director emphasised. Sharing his analysis, he said facts suggested that the increase in taxes had brought down tax collection as well.

The share of taxes in retail prices falls in the range of 53-72%, depending on the brand, for the cigarette manufactured and marketed by the two tax-paying industrial players.

On the contrary, some 21 tax-evading players were selling cigarettes at prices as low as Rs25 per pack, which was much lower than the minimum tax of Rs34 (or 53%) the company paid on a cigarette pack, he said.

“Locally manufactured illicit cigarettes (which come to 90% of the illegal market in Pakistan) pose a bigger threat to the industry compared to smuggled cigarettes,” he said.

An Oxford Economics' study, published in September 2018, concluded that Pakistan ranked number one in Asia for consuming illicit cigarettes. Smokers in Pakistan consumed 32.6 billion illicit cigarettes, which translated into 41.9% of the total consumption in 2017, said the study which covered 16 regional countries.

An industry official, on condition of anonymity, added that some current and a few former senators and members of the National Assembly owned the illicit cigarette manufacturing factories in Mardan, Swabi and Azad Jammu and Kashmir.

“A former minister of Khyber-Pakhtunkhwa is running one of the illicit cigarette factories,” he claimed.