Illicit cigarettes share up 63pc in current fiscal

ISLAMABAD: The share of illicit cigarettes in shape of tax evasion, counterfeit and smuggled has gone up to Rs310 billion on per annum basis after hike in Federal Excise Duty (FED) and lack of effective enforcement.

The share of illicit cigarettes in the country has gone up to 63pc in current fiscal year, while tax-paying companies share has shrunk significantly in recent years.

These views were expressed by representatives of Philip Morris Pakistan Limited (PMPKL) during their interactions with the journalists here Wednesday.

The representatives of PMPKL argued Track and Trace System (TTS) was only implemented by two multinational companies. The Federal Excise Duty (FED) was hiked by 154pc, while lack of effective enforcement, especially TTS, pushed up share of illicit manufacturers in the country, they said.

They said share of illicit in India stood at 9 to 11 percent, while in Bangladesh it was hovering around 13 to 15pc. They proposed the government to bring all cigarettes manufacturers into similar taxation system and enforce TTS in its true letter and spirit.

They said consumption of cigarettes did not decrease rather it shifted from formal sector to illicit, which is making lofty profits at the cost of national exchequer. They underscored the urgency for measures to tackle escalating presence of low-priced non-tax-paid cigarettes. It has resulted in a loss of level playing field and a significant decline in volumes within the legitimate tobacco sector.

To address profound challenges gripping tax-paid cigarette industry in Pakistan, Head of Communications at PMPKL Andleeb Uroos, highlighted alarming 86pc decrease in total income for fiscal year 2023. She drew attention to detrimental impact of FED hikes and escalating market share of non-duty paid illicit cigarettes in country.

Uroos elaborated substantial excise increases tend to inflate the prices of tax-paid cigarettes, exacerbating the price gap as tax-evading sector disregards these hikes. “This scenario has provided ample opportunity for local illicit cigarette manufacturers, notably in Khyber Pakhtunkhwa (KPK) and Azad Jammu & Kashmir to amass substantial market share, while contributing minimally to national revenue”.

Statistics unveiled during the briefing painted a stark picture of massive surge in illegal cigarettes across Pakistan. Illicit cigarettes now command a staggering 63pc market share and are causing annual dent of Rs310 billion to the exchequer.

While acknowledging government efforts such as introduction of tax stamps (Track & Trace System) to combat illicit tobacco trade, she expressed concern about lack of enforcement, allowing non-tax-paying industry to flourish.

She stressed the need for decisive action to safeguard interests of tax-paying entities and to ensure sustainable revenue collection. She suggested including tax-evading cigarette manufacturers in the tax net instead of burdening legitimate industry with additional taxes.

Uroos observed by curtailing tax evasion, FBR can boost revenue collection from tobacco sector by over $2 billion. “The potential revenue, if realised, could significantly contribute to human development projects and public health initiatives in Pakistan, addressing critical areas where the country lags in human development rankings”, she said.

She noted various anti-tobacco organisations had been misguiding government by spreading misinformation about the current and potential revenue collection from legitimate tobacco industry, forwarding agenda of illicit tobacco sector.

Uroos cautioned hike in taxes, coupled with inadequate enforcement, would hurt government revenue and public health objectives. Further taxes would push consumers to move to illicit cigarettes, decreasing market share and revenue collection from legitimate cigarette manufacturers, she said.

She hoped concerted efforts by the industry and government could effectively tackle these challenges and ensure a level playing field for all stakeholders.