Rise in illicit cigarette sales feared

Industry points out higher taxes will also lead to increase in smuggling

ISLAMABAD:

Expressing serious concern over the recent mini-budget announcement, Pakistan Tobacco Company (PTC) has said that new taxes on cigarettes will lead to an increase in smuggling and supply of counterfeit products to markets.

Talking to media on Friday, PTC Director Legal and External Affairs Syed Asad Shah said that the unprecedented increase in federal excise duty (FED) and a lower minimum price set by the Federal Board of Revenue (FBR) would result in less revenue collection from the cigarette industry.

He displayed several illicit cigarette packs that were available in markets across the country, which included some smuggled brands without health warnings, counterfeit products of local brands and unregistered and non-tax-paid locally produced cigarettes.

Shah was of the view that those involved in illegal cigarette trade were prepared to hit the markets hard with their products.

“Currently, the share of illicit cigarettes in Pakistan is 35% but this will increase to 40-50% in the current year,” he projected, adding that if the government did not rationalise the policy of managing the threshold price level and did not restrict illicit trade, its revenues too would decline after two years.

Illicit cigarettes are sold below the minimum price because the applicable tax per pack is not paid on these products.

The cigarette industry paid total taxes of Rs150 billion in fiscal year 2021-22 and the expected tax receipts this year would be around Rs185 billion because of the new taxation measures.

According to the industry, tax contribution by two multinational companies, PTC and Philip Moris, alone will be around Rs182 billion.

Shah pointed out that around 35 cigarette companies were running in Pakistan, making some 200 brands, but local players paid only Rs3 billion in taxes and duties.

“The question is how some companies are selling cigarette packs for Rs7; the reality is that many are not paying due taxes,” he added.

PTC officials underscored the need for a rational increase in the minimum legal price of cigarettes as after the recent rise in FED, taxes and duties on tier-2 cigarette packs came in at Rs101 but the minimum sale price of the same packs was Rs108.

Company officials demanded that the finance ministry take stringent action against the illicit cigarette trade and ensure across-the-board implementation of the FBR’s track and trace system that monitors production and supply of cigarettes.

Published in The Express Tribune, February 25^th, 2023.

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