PTC faces export crisis on regulatory hurdles

Ministry of Health regulations threaten $20.5m Sudanese order

ISLAMABAD:

Pakistan’s second-highest taxpayer firm and recipient of the Prime Minister’s Excellence Award, the Pakistan Tobacco Company (PTC), is on the verge of losing one-third of its export order for the next fiscal year due to a production-related regulation barrier.

The PTC has a mid-May deadline to deliver cigarettes in packets of 10 sticks to Sudan, but the Ministry of Health’s packaging-related rules have become an obstacle, according to an official of the company.

The PTC received a $20.5 million export order from Sudan, which requires the order to be delivered in packets of 10 sticks of cigarettes each. Pakistani rules prohibit the sale of cigarettes in small packets of 10 sticks, but there is no such restriction in Sudan, according to PTC officials.

PTC has been exporting cigarettes to numerous world markets since 2019 and has so far earned $156 million for the country. For the next fiscal year, the company is targeting $60 million in exports, but one-third of the order is at stake due to the Ministry of Health’s reluctance to amend the Statutory Regulatory Order (SRO) for export purposes.

Last month, Prime Minister Shehbaz Sharif awarded the second-highest taxpayer award to the PTC in all categories of taxes. PTC was the only non-government-owned firm among the top five recipients of the highest taxpayer award in the category of all taxes. One reason for earning the award was the heavy indirect taxation on tobacco to discourage smoking.

In the last year, the company paid Rs148 billion in taxes in the form of federal excise duty and sales tax—a sum essentially paid by smokers due to heavy taxation to discourage smoking in Pakistan.

The highest taxpayer was Pakistan State Oil (PSO).

It seems that the government is only interested in getting revenues from these firms and is not inclined to address their genuine business-related issues.

According to the Prohibition of Sale of Cigarettes to Minors rule, no cigarette manufacturer shall manufacture, sell, or offer for sale any cigarettes unless they are in a packet of at least 20 cigarettes in Pakistan.

The irony is that despite these rules, a customer can buy even a single cigarette, which defeats the purpose of selling cigarettes in 20-stick packs. PTC has requested the government to amend the rules and limit the 10-pack selling restriction to only domestic consumption.

Pakistan and Sudan are signatories to the Framework Convention on Tobacco Control (FCTC) by the World Health Organisation. It is permissible to sell cigarettes in packets of 10 in Sudan.

Instead of making a decision, the Ministry of Health has referred the matter to the Ministry of Foreign Affairs to seek its input on the matter in light of the FCTC treaty.

The company has already lost an international export order to the Gulf countries in 2019 due to a lack of clarity on 10-pack cigarette manufacturing. At that time, the Ministry of Commerce had given the go-ahead for exports, but the Ministry of Health had not agreed.

Usually, exporting companies follow the rules and regulations of the importing nations—a principle that Pakistan’s Ministry of Health is ignoring.

After an increase in duties on locally manufactured tobacco during the past few years, smuggled cigarettes are openly sold in Pakistan without any fear of the law.

Heavy taxation has adversely affected the balance sheets of regulated tobacco multinational manufacturers, but local unregulated brands are thriving in their businesses in connivance with government departments.

Local manufacturers are selling 20s, 25s, and 30-cigarette packets for less than the permissible minimum prices, making smoking affordable in Pakistan.

The company has categorically assured that it is not interested in selling 10 packs in Pakistan and has sought a change in rules to meet the Sudanese order requirements, according to a PTC official.

The company official said that it was not economically viable to sell 10-stick packets in Pakistan due to the nature of taxation. The official said that the price of a 20-cigarette pack in Tier-I is Rs483 or more inclusive of GST, adding that small packet taxation would be more than Rs275. In Tier-II of the low taxation category, the PTC’s per packet price is Rs212, so the 10-pack will be more than Rs110, whereas packs of 20 and 30 cigarettes of tax-evaded brands are selling for Rs130 and less, he added.

Multinational companies with factories in Bangladesh and Indonesia are more into exports. The PTC official said that if Pakistan does not allow exporting cigarettes in small packets, the order may be shifted to Bangladesh or Indonesia.

The availability of smuggled and tax-evaded cigarettes in Pakistani markets, including the sale of a single cigarette, shows the lack of effectiveness of tobacco controls and weak compliance, which is also leading to billions of rupees in annual tax evasion.

PM Sharif no Friday reiterated the resolve to purge the country of smuggling and directed the authorities to accelerate the nationwide drive against the menace.

The PM was informed that a list of smugglers, hoarders, and their facilitating officers has been forwarded to law enforcement agencies and provincial governments. The premier directed the removal of identified officers from their respective posts and the initiation of disciplinary proceedings against them.

The Society for the Protection of the Rights of the Child (SPARC), a foreign-funded non-governmental organisation, has reacted to the request to amend export packaging to 10-stick packets.

SPARC said on Friday that health-related activists have expressed concerns over its potential impact on children and low-income groups across the nation.

SPARC said that tobacco manufacturers have made similar attempts in the past, but the Ministry of Health did not issue the no-objection certificate. The application for 10-stick packs by the tobacco industry is deeply troubling, it added. It will not only undermine the progress made in tobacco control but also directly target children and low-income individuals who are most vulnerable to the harmful effects of tobacco consumption.

Contrary to SPARC’s claim, the PTC has requested a change in rules to the extent of exports.

SPARC urged the government not to allow the manufacturing or sale of 10-stick packs and to prevent the exploitation of children and low-income groups by the tobacco industry.

Published in The Express Tribune, April 21^st, 2024.

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