Tax hike to favour illegal cigarette producers

Tax-paying manufacturers fear volumes will shift to tax evaders

ISLAMABAD:

The cigarette industry has insisted that the recent hike in taxes on the tax-paying tobacco companies will effectively favour the already vast illicit cigarette manufacturers in Pakistan.

In a statement, a spokesperson for Philip Morris Pakistan Ltd said that the proposed unprecedented tax hike would lead to a significant shortfall in government revenue as production volumes would shift from the tax-paying sector to the non-tax-paying producers.

For the period 2019-2021, the increase in federal excise duty (FED) was to the tune of 26%. During FY2022-23, the FED on cigarettes has already been increased by 25% and the latest announcement will push it up by over 150%. It “will result in a price impact of over 250% on the adult consumers versus 1Q2022,” he said.

Other players say that the legitimate industry has been very clear in its stance that the excise duty-led price increase gives rise to illicit cigarette sales. According to them, over 200 illicit cigarette brands are being produced by 40+ companies in K-P and AJK, selling in a price range of Rs35 to Rs60 per pack. They continue to flaunt the minimum price law, which states that cigarettes cannot be sold for less than Rs70 per pack, the industry players said.

On the other hand, the legitimate industry ensures compliance with the law.

Published in The Express Tribune, February 16^th, 2023.

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