Pakistan - Tobacco Reporter

Manufacturers Enact Tracking System

About 20 local cigarette manufacturing companies signed agreements with Pakistan’s Federal Board of Revenue (FBR) for implementation of a track-and-trace system, according to ProPakistani.

The local companies have been forced to start implementation of the system due to vacation of stay orders from courts and the deputation of Inland Revenue officials. The FBR has been in a court battle for about two years over implementing the system; the FBR finally won the legal battle and is now enforcing the track-and-trace system at local factories.

Implementation is at different stages for each company; almost all local manufacturers have signed the agreements with the FBR and begun implementing the track-and-trace system. One company has fully implemented the system while six companies are manually stamping cigarette packs. Some companies have purchased applicators, and other companies have started test runs.

All manufacturing companies within the jurisdiction of Azad Kashmir have obtained stay orders against the system, however.

August 25, 2023

Pakistan: Cigarettes Seized for Tax Violations

Pakistan’s tax authorities confiscated 650 cartons of cigarettes from Philip Morris (Pakistan), alleging that the products were sold below the minimum retail price, reports Pakistan Today.

“This action underscores the government’s commitment to upholding tax laws and safeguarding public health,” a Federal Bureau of Revenue official was quoted as saying. “Violations of these regulations not only undermine public health initiatives but also lead to revenue losses for the government.”

Philip Morris insisted it was in full compliance with tax obligations for all its brand. A company spokesperson said that the company is cooperating with FBR and is dedicated to tackling illicit trade in Pakistan.

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August 24, 2023

Illicit Cigarettes Set to Dominate Pakistan

Illicit cigarettes may exceed legitimate tobacco sales in Pakistan within the next quarter, warn some industry insiders, according to Profit. The illicit products have already secured more than 40 percent of the market.

The tobacco industry has criticized the Federal Board of Revenue and the Ministry of Health for their perceived failure to curb the illicit market.

Sami Zaman, head of external affairs at Pakistan Tobacco Co., warned that if left unchecked, illicit cigarette sales could secure more than 50 percent of the market share in months.

Illicit cigarettes offer lower price points and many flavor options but lack proper taxation and legally mandated graphic health warnings.

The industry is having a hard time fighting this due to a supply shortage of legal products; 75 million kg of raw tobacco was secured for the entire cigarette manufacturing industry despite promises of 85 million kg, causing cigarette prices to increase dramatically.

The licit cigarette industry saw a 44 percent decrease in cigarette manufacturing during June 2023 followed by a 28.4 percent decrease from July 2022 to July 2023.

August 21, 2023

Pakistan Tobacco Growers Reject Price

Tobacco growers in Pakistan have rejected the per kilogram price set by Pakistan Tobacco Company and Philip Morris International Pakistan, reports Dawn.

The companies offered PKR425 ($1.48) per kilogram for Virginia tobacco, according to Arif Khan, central president of Ittehad Kashtkaran, Khyber Pakhtunkhwa. Khan said this is unrealistic due to the rising prices of fertilizer, labor, pesticides and other costs.

The Economic Coordination Council of Federal Ministry for Commerce set the minimum price at PKR310 per kilogram.

“In the open market, businessmen and small companies are purchasing tobacco at PKR500 per kilogram, offering PKR76 more than the multinational companies,” said Khan, who also noted that if the companies did not increase prices, the growers would be forced to stage protest in front of the local offices.

“After Eid, we will evolve a joint line of action,” said Liaqat Yousafzai, central president of the Tobacco Growers Association Pakistan, who also said they appealed to growers to stop taking produce to the companies’ buying centers.

June 26, 2023

Farmer Group Calls for Lower Tobacco Tax

Mushfiq Ali Khan, president of Anjuman-e-Kashtkaran, a farmers’ group, has asked the government of Pakistan to reduce the federal excise duty on cigarettes so the regulated industry can resume purchasing from tobacco farmers, ensuring timely payments and safeguarding farmers’ livelihoods, reports the Pakistan Observer.

A recent hike in tobacco excise taxes has prompted legal tobacco companies to cut production, driving down demand for leaf and prompting some farmers to sell their leaf on the black market. Farmers are not getting fair returns on their crops due to a decrease in sales in the legal industry, according to Khan. High taxes and a decline in sales, he said, have led the regulated industry to limit tobacco purchases.

“On the other hand, the illicit cigarette manufacturing industry offers farmers unfair prices for their tobacco, with no guarantee of timely payment. Faced with this predicament, farmers are left with no choice but to rely on the illegal cigarette industry,” he said.

June 12, 2023

Pakistan Asked to Reconsider Tax Hike

The chief financial officer and executive director of Philip Morris International in Pakistan has asked the government to reconsider a hike in federal excise duties (FED), reports The Tribune.

In February, the government increased the FED by 200 percent for the current fiscal year, causing legal cigarette sales to drop considerably.

PMI suffered an almost 70 percent decline in sales and a 60 percent drop in production in March and April. “This downward trend is expected to persist in the coming months due to the rise in illicit cigarette sales,” said PMI’s Muhammad Zeeshan.

BAT subsidiary Pakistan Tobacco Co. also scaled back production in the wake of the tax hike, citing fierce competition from the black market. In a letter to the Federal Board of Revenue, the company stated its intention to re-export four cigarette making machines due to a decline in sales volume. The company has reportedly already shut down eight of 10 production lines at its Jhelum facility.

Zeeshan told journalists that the high FED not only depresses fiscal revenue, but also fuels the illicit market, exacerbating the government’s financial challenges.

In the quarter that ended March 31, 2023, PMI paid PKR5.99 billion ($2068 million) in excise duty, sales tax, and other government levies in Pakistan—16.4 percent less than in the previous period. Zeeshan attributed the drop to the decrease in sales owing to the rise in cigarette prices following the tax hike.

He warned that the government’s revenues from the tobacco industry would likely fall short of the targeted PKR260 billion after the FED hike.

Illicit sales account for approximately 40 percent of Pakistan’s tobacco market, according to Zeeshan. Without an adjustment of fiscal policies, it is likely to grow to 50 percent, he warned.

Health activists have accused the tobacco industry of overstating the decline of production to influence policymakers’ discussions about the upcoming budget, according to Business Recorder.

May 29, 2023

Tax Hike to Boost Tobacco Revenue

The government of Pakistan will collect PKR200 billion ($698.5 million) in tobacco taxes this year, up from PKR148 in the previous fiscal year, reports Dawn, citing a study by The Capital Calling.

In February, the government significantly increased the federal excise duties. According to The Capital Calling study, the higher prices forced one in every 94 smokers in Pakistan to quit.

The tobacco industry says the higher taxes have prompted many smokers to buy their cigarettes on the black market. According to industry representatives, volumes of duty-not-paid cigarettes and smuggled cigarettes have shot up 32.5 percent and 67 percent, respectively, since January. This has bumped the illicit sector’s share to more than 42.5 percent of Pakistan’s total tobacco market.

Critics say the industry is exaggerating the problem, with some surveys estimating the share of illicit sales at only 18 percent of the tobacco market.

Pakistan Tobacco Co. has scaled back production in the wake of the tax hike, citing difficulties competing with the thriving illicit market. In a letter to the Federal Board of Revenue, the company stated its intention to reexport four cigarette making machines due to a decline in sales volume. The company has reportedly already shut down eight of 10 production lines at its Jhelum facility.

May 24, 2023

Pakistan Tobacco Trims Output as Illicit Trade Booms After Tax Hike

Pakistan Tobacco Co. (PTC) is scaling back production as it struggles to compete with illicit tobacco sales, report Pakistan Today and The Express Tribune.

In a letter to the Federal Board of Revenue, the company stated its intention to re-export four cigarette making machines due to a decline in sales volume. The company has reportedly already shut down eight of 10 production lines at its Jhelum facility.

The move comes in the wake of a steep tobacco tax hike. In February, Pakistan increased the federal excise duty by more than 200 percent, driving smokers to cheaper untaxed locally manufactured tobacco products and smuggled cigarettes. In March, production of duty-paid tobacco products plunged 50 percent, according to the Pakistan Bureau of Statistics. The overall large-scale industry, by contrast, suffered only a decline of 25 percent in the production of duty-paid products.

According to PTC representatives, volumes of duty-not-paid cigarettes and smuggled cigarettes have shot up 32.5 percent and 67 percent, respectively since January. This has bumped the illicit sector’s share to more than 42.5 percent of Pakistan’s total tobacco market.

In 2022-2023, the share of legitimate tobacco sector was 41.4 billion sticks while the illicit sector sold 41.6 billion sticks. Observers expect the February tax hike to hand an additional 11.8 billion sticks to the black market in 2023-2024.

PTC Senior Business Development Manager Qasim Tariq said that, as a result of the tax hike, the government would for the first time in Pakistan’s history lose more tax income to the illicit sector than it earned in revenue from legitimate companies.

“If the current fiscal regime prevails, damage to the national exchequer as well as the legitimate industry will be immense and tough decisions will have to be taken,” he cautioned.

A track-and-trace system to help combat illegal tobacco sales has been delayed by legal challenges and other setbacks.

May 22, 2023

Pakistan Expects Tax Hike to Boost Revenue

Pakistan’s government expects to collect PKR60 billion ($211.42 million) in additional revenue after increasing the federal excise duty on tobacco products, reports the Pakistan Observer.

The government dismissed concerns about black market sales.

The multinational tobacco industry has incorrectly claimed that illicit cigarettes make up 40 percent of the market, according to the government, which cited independent studies showing that illicit products only account for 18 percent of the market.

According to the Pakistan Observer, the industry is overstating the volume of illegal sales to put pressure on the government following the tax increase.

The implementation of a track-and-trace system has helped decrease illicit products, according to Malik Imran, country head of the Campaign for Tobacco-Free Kids. “Tentatively, we can say the volume is now negligible,” he said.

May 2, 2023

Pakistan To Miss Tax Target Due To Illicit Sales

Pakistan is unlikely to achieve its tax collection targets due to the rapid growth of illicit cigarette sales, reports Geo News, citing Philip Morris Pakistan Chief Financial Officer Muhammad Zeeshan.

In February, the government increased the Federal Excise Duty on cigarettes in an attempt to boost revenues in line with the conditions for financial support from the International Monetary Fund.

Following the tax hike, the duty on locally produced cigarettes retailing for more than PKR9,000 ($32.02) per 1,000 sticks is PKR16,500 while the duty on locally produced cigarettes retailing for less than PKR9,000 per 1,000 sticks is PKR5,050. The government aims to fetch an additional PKR11 billion ($39.13 million) in revenue with the measure.

The excise duty increase has doubled the price difference between legal and illegal cigarettes. As a result, illicit cigarette sales have skyrocketed. In the first quarter of 2023, the sale of legal cigarettes has declined by 50 percent. Pakistan now has the second-largest illicit cigarette market in Southeast Asia after Malaysia.

Due to the declining legal sales, analysts expect the government to collect only PKR170 billion from the tobacco industry—well short of its collection target of PRK260 billion.

April 17, 2023

Tag: Pakistan