From July 1, tobacco consumers will be paying approximately Rs7 more to buy a pack of 20 cigarettes, according to a new tax rate announced by Finance Minister Ishaq Dar on Friday.
The government, while unveiling the budget for fiscal year (FY) 2015-16, increased federal excise duty (FED) on tobacco from the current 58% – the average FED rate for both upper and lower slabs (brands) of cigarettes as of FY 2015 – to 63% for the next fiscal year.
The increase in FED will incur an increase of about Rs5 on a pack of 20 cigarettes in case of value pack (low-end brands) and approximately Rs7 in case of premium brands, said sources in tobacco industry.
This translates to a price increase of Rs0.25 and Rs0.33 per stick (cigarette) on lower and premium brands, respectively.
“Pakistan’s tobacco market is price sensitive, the increase will encourage illicit trade and smuggling,” an official associated with the industry said while commenting on the increase.
The formal tobacco sector has argued that raising taxes on cigarettes will make them expensive compared to their counterparts that circulate in the market at a much lower price due to tax evasion. This increase will deprive legitimate players of a level playing field.
The federation has been raising tobacco taxes for years – the FED per 1,000 cigarettes increased from Rs323 in FY08 to Rs880 in FY14, according to Asia-14: Illicit Tobacco Indicator 2013, an international study compiled by the International Tax and Investment Centre and Oxford Economics.
However, the government has been unable to curb illicit trade, which includes smuggled and counterfeit cigarettes on which duties are not paid.
The illicit tobacco trade was nearly one-fourth – 22.8% to be precise – of the country’s total cigarette consumption in FY13, according to the study, and this has caused the exchequer losses worth more than Rs20 billion during FY14.
Tobacco is one of the highest tax-paying sectors, contributing more than the entire salaried class combined. In the outgoing fiscal year, tobacco industry would have paid Rs103 billion in overall taxes to the national exchequer, said the official.
Based on the new tax rates, the government is likely to earn Rs125 billion in taxes from the tobacco sector in FY16 – an increase of 21% if realised, the official said.
Published in The Express Tribune, June 6th, 2015.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ