Tax-evaded, smuggled cigarettes cause Rs240b loss

Illicit cigarette brands have whopping 48% market share

ISLAMABAD:

Tax evasion by illicit cigarette traders is causing Pakistan a loss of Rs240 billion annually.

Ipsos, the third largest market research firm in the world with presence in 90 markets, recently conducted a market assessment of illicit cigarette brands in Pakistan.

A survey of 1,000 shops in 10 districts, including Karachi, Lahore, Rawalpindi, Multan, Faisalabad, Gujranwala, Hyderabad, Peshawar, Bahawalpur and Sukkur, was undertaken to check and analyse the availability and prices of locally manufactured tax-evaded brands and smuggled brands.

The research came in the wake of a huge increase in federal excise duty in the Finance Supplementary Act, approved in February 2023. Under the Act, the government increased tier-I excise rates by 154% while tier-II rates were jacked up by 146%.

The drastic increase in excise rates was reportedly aimed at generating additional revenue to meet the IMF conditions.

Locally manufactured tax-evaded cigarette brands and smuggled brands do not comply with the stipulated requirements of the government of Pakistan, which include the printing of a graphic health warning, underage warning, retail price and the manufacturer’s name.

Furthermore, these brands do not comply with the brand licensing regime of the FBR neither do they have the mandated track and trace stamp. These brands also violate the Federal Excise Act and the Sales Tax Act.

As per findings of Ipsos research, the overall market share of legal cigarette brands is 52% with Pakistan Tobacco Company holding a share of 40% and Philip Morris International having 12% share.

A whopping 48% market share is with illicit cigarette brands. Of this, the locally manufactured tax-evaded brands hold 38% of the illegal market share while smuggled cigarettes have a 10% share.

While assessing the implementation of track and trace system for different cigarette brands, the study found that more than 83% of the brands included in the sample were being sold without the government-mandated track and trace stamp.

According to the report, over two-thirds of cigarette brands are being sold below the government’s minimum legal price, exposing the failure of authorities to enforce tax laws effectively.

Published in The Express Tribune, June 3^rd, 2023.

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