Tag: Pakistan

Pakistan Asked to Reconsider Tax Hike

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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

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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

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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

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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

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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
Pakistan Leaf Exports Up Nearly 75 Percent

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Pakistan’s leaf tobacco exports jumped 74.66 percent during the first three months of fiscal year 2022–2023 as compared to the corresponding period of last year, reports the Daily Times, citing figures from the Pakistan Bureau of Statistics (PBS).
During the quarter, the nation exported tobacco worth $13.8 million. In terms of volume, tobacco exports also rose by 93.35 percent from 3,096 metric tons to 5,986 metric tons, the data revealed.
Meanwhile, the year-on-year basis for tobacco export increased by 29.39 percent during September as compared to the same month of last year.
The tobacco exports in September 2022 were valued at $3.5 million against the export of $2.71 million in September 2021, the PBS data revealed.
On a month-on-month basis, leaf exports in September were down 34.96 percent from $5.381 million in August 2022.
November 7, 2022
Tobacco Farmers Urge End to Pakistan’s Advance Tax

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Tobacco farmers in Pakistan on Monday urged the government to withdraw PKR380 ($1.76) per kilogram advance tax on the tobacco leaf, otherwise they would stage a protest in Islamabad.
Addressing a press conference at Islamabad National Press Club, president of the Mehnatkash Labour Federation, Ibrar Ullah, said that price of tobacco per kilogram in the open market was PKR256 per kilogram while the advance tax on it was PKR380 per kilogram, according to The News.
He said the advance tax on the tobacco leaf was hurting the sale of the crop in the market and this would render over 15,000 labourers and 20,000 families of the farmers jobless.
The president of the Kissan Board, Rizwan Ullah, also rejected the imposition of the advance tax on the crop, saying the government was destroying the value of the crop through such tactics instead of providing them relief.
He said that all farmers from Khyber-Pakhtunkhwa province would stage a sit-in in Islamabad if the advance tax on the crop was not withdrawn.
Liaqat Yousafzai of the Kashtkar Coordination Council KP termed the imposition of the advance tax on the tobacco crop as “public enmity.”
He said that rates of tobacco were increasing around the world, while they were decreasing in Pakistan.
August 23, 2022
Firms Shun Track-And-Trace System

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More tobacco companies must install Pakistan’s new track-and-trace system to tackle the country’s massive tax evasion problem, according to Project Director Tariq Hussain Shaikh.
Out of the 40-plus companies registered with the Pakistan Tobacco Board, only three—Philip Morris Pakistan, Pakistan Tobacco Co. and Khyber Tobacco—have installed the track-and-trace system that became operational on July 1, reports the Business Recorder.
According to Shaikh, the system has significantly boosted government tax collections in other sectors. In the sugar industry, for example, sales tax collections increased by 34 percent after its implementation at the end of 2021.
Success, however, depends on across-the-board implementation, Shaikh cautioned. Unless more tobacco companies adopt it, the track-and-trace system will not reduce tax evasion, which in Pakistan amounts to PKR80 billion ($335.74 million) per year.
In a letter dated June 30, 2022, Pakistan’s Federal Board of Revenue directed all cigarette manufacturers to apply tax stamps to their products from July 1, 2022. Nine tobacco companies have challenged the directive on technical grounds.
July 28, 2022
Pakistan Mandates Tobacco Track-and-Trace System

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Several tobacco companies are challenging Pakistan’s Federal Board of Revenue (FBR) in court, seeking relief from the country’s new track-and-trace system, according to reports in The International News and Dawn.
Starting this month, all tobacco companies operating in Pakistan must implement the country’s track-and-trace system. Tobacco products may enter the domestic market only if they carry stamps and unique identification markers.
To date, only three tobacco manufacturers—Pakistan Tobacco Co., Philip Morris International and Khyber Tobacco Co. (KTC)—have installed the track-and-trace system and made it operational. KTC Chief Technology Officer Shahid Sattar said the system would help the company enhance its presence in the Pakistani market and improve the quality of its products to international standards.
The companies challenging the FBR want to continue selling old stock. The agency instructed them to discontinue such sales on June 30.
The tobacco companies that are already operating the system maintain that it will succeed only if all players implement it. According to critics, the companies challenging the FBR instructions engage in illicit trade and fear the track-and-trace system will expose their illegal activities.
In addition to the multinationals, there are at least 21 tobacco companies operating in Pakistan, including 18 in Khyber Pakhtunkhwa and three in the country’s federally and provincially administrated tribal areas.
Out of the PKR134 billion ($645.47 million) in taxes collected from the tobacco industry in 2020, PKR131 was paid by two companies, which together held a 65 percent market share.
July 8, 2022
Pakistan: Illicit Cigarette Market Up Significantly

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Pakistan’s revenue losses from the illicit cigarette trade increased by 53 percent in two years, reports The Nation, citing a report by Oxford Economics. In fiscal year 2020-2021, the state missed PKR77.8 billion ($380.7 million) in tax collections due to illicit cigarette sales, compared with PKR50.9 billion in 2018-2019.
Oxford Economics said that illegal cigarettes account for 38 percent of total consumption in Pakistan, compared with 32 percent in 2018-2019. The vast majority of illegal cigarettes (90 percent) are locally produced.
The value of tax evaded by illegal cigarettes in Pakistan in 2021 amounts to 58 percent of the total tax revenues collected from legitimate sales in the previous financial year. To place this in context, it is equivalent to more than double the government’s education expenditure in 2020-21.
According to Oxford Economics, the rise in the illicit cigarette market share in recent years coincided with a sharp rise in the excise rates. Excise rates on most legal cigarettes nearly doubled following the September 2018 supplementary budget and the June 2019 Federal Budget. Tier 2 excise rates—which represent 92 percent of the total industry volume—rose from PKR854 per 1,000 pieces to PKR1,650 per 1,000 pieces.
Due to the instability of revenues and growing illicit share, Pakistan kept cigarette excise taxes unchanged in 2020-2021.
June 13, 2022