Tag: Pakistan

Pakistan is the ‘top’ country in Asia when it comes to the illegal cigarette trade, according to a story in The News citing figures from a new report.
But the good news is that the consumption of illicit cigarettes declined in the country in 2017.
The country’s annual illegal trade in cigarettes is estimated by Oxford Economics at 32.6 billion cigarettes, or 41.9 percent of the total cigarette trade.
The Oxford Economics report, Asia Illicit Tobacco Indicator 2017: Pakistan, was made available to the media by Philip Morris International on Friday.
It said that Pakistan was losing more than Rs50 billion in taxes to the illegal trade in the country.
Total consumption (licit and illicit) was estimated at 77.8 billion cigarettes in 2017, down by 10.3 percent on that of 2016. Of this total, an estimated 58.0 percent was licit domestic cigarettes, 0.1 percent was licit non-domestic cigarettes, and 41.9 percent was illicit cigarettes.
Domestic illicit cigarettes accounted for nearly three-quarters of all illicit cigarettes consumed in 2017, the data showed.
The consumption of illicit cigarettes declined by an estimated 14.0 percent in 2017 to 32.6 billion cigarettes, underpinned by an 11.4 percent decline in the consumption of domestic illicit cigarettes and a 20.5 percent fall in the consumption of non-domestic illicit cigarettes. ‘This is the first time since 2013 that illicit consumption has fallen in Pakistan,’ the report said.
The decline in the consumption of illicit cigarettes was said to have coincided with a series of regulatory and enforcement initiatives.
‘In January 2017, the Federal Board of Revenue (FRB) constituted a joint committee for the monitoring, vigilance, and scrutiny of the cigarette/tobacco sector in response to the rise in illicit consumption, and in recognition of the links between tobacco smuggling and financing terrorism,’ the News reported.
‘The committee, known as the Inland Revenue Enforcement Network (IREN), was tasked with monitoring and developing strategies to combat the illegal cigarette trade. In the first year of operation, IREN seizures amounted to 1.63 billion non-duty-paid cigarettes and raw tobacco. In July 2017, the FED (federal excise duty) was restructured with the introduction of a third low-tax-tier in an attempt to encourage producers of illicit tobacco to formalise and become better regulated.’

Multinational tobacco companies are flourishing at the expense of Pakistan’s economic interests because of flaws in the country’s taxation mechanism and an absence of suitable laws to regulate the way these companies function, according to a story in Pakistan Today quoting ‘sources’.
Looking at multinational companies more widely, the story said that a lack of governmental oversight and ineffective regulatory checks had allowed the Pakistan operations of these companies to exploit the existing situation and enjoy ‘mega corporate benefits beyond imagination’.
In recent years, the story said, Philip Morris (Pakistan) Limited (PMPKL) had used losses of millions of rupees to justify the large-scale downsizing of its staff and the closure of its factories.
However, after the introduction of a ‘highly controversial’ third-tier tax slab by the former government in the fiscal year 2017-18, PMPKL had shown a profit of Rs724.14 million in the first half of this year ending on June 30, 2018.
During the same period of last year, PMPKL had recorded a loss of Rs463.45 million.
The story said that the introduction of the third-tier tax slab had benefitted the tobacco companies without doing any good to national revenues, though it quoted a Philip Morris International results commentary that seemed to dispute this.
According to the story, a PMI quarterly report for the third quarter ended September 30, the company’s gross turnover increased by 25 percent on that of the same period of 2017, mainly because of the normalization of trade inventory movements and partial recovery of sales volumes after the introduction of the third excise tax tier in the 2017/18 federal budget.
The company had recorded an operating profit before tax of Rs1,194 million for the nine months period ended September 30, up from Rs391 million for the same period of 2017.
During the period ended September 30, the company’s contribution to the national exchequer, in respect of excise duty, sales tax, and other government levies, was Rs13,648 million, up from Rs11,429 million during the same period of 2017. PMI was quoted as saying that the third excise tax tier had provided a wider and more sustainable base for the growth of government revenues, which would have otherwise seen a significant decline.
The introduction of the third excise tier was said to have arrested the growth of non-tax paid cigarette segment by narrowing the price gap between tax paid and non-tax paid cigarettes.
However, the Finance Supplementary Bill (September 18, 2018) had imposed a 46 percent increase in the excise rates for the third excise tier, which had led to a tax-driven price increase that had again widened the price gap between the tax paid and non-tax paid cigarettes.

A recent study has indicated that sales of illicit cigarettes account for under nine percent of Pakistan’s market, according to a story in the Express Tribune.
The results of the Study to Assess the Volume of Illicit Cigarette Brands in Pakistan was launched on Wednesday by the Pakistan National Heart Association and the Human Development Foundation.
They indicate that tobacco-industry claims that illicit cigarettes account for more than 40 percent of the market are wrong.
The results are said to indicate also that the third tier of taxation introduced by the Federal Bureau of Revenue (FBR) to give relief to tobacco companies was not justified.
The FBR initiative is said to have caused a loss of billions of rupees to the government exchequer and to have increased tobacco consumption considerably, increasing the nation’s health burden.
The study was carried out recently under the technical guidance of the Knowledge Hub on the Economics of Tobacco Control Project, which is part of the World Health Organization’s Framework Convention on Tobacco Control (FCTC).
It assessed volume sales of illicit cigarettes in 10 cities and their adjoining rural areas across Pakistan.
Data from Karachi, Lahore, Sukkur, Multan, Hyderabad, Peshawar, Quetta, Rawalpindi, Muzaffarabad and Nowshera, were said not to have supported tobacco-industry claims.
The study said there was no justification for the tax break provided by the third tier.
All tax relief should be removed and taxes on tobacco should be increased, the study recommended.
The full story is at: https://tribune.com.pk/story/1677803/1-research-says-illegal-cigarette-sales-less-9/.

Pakistan’s Peshawar High Court on Tuesday issued a stay order against the federal government’s decision to reduce taxes on tobacco products, and directed respondents in the case to submit their responses, according to a story by Hidayat Khan for the Express Tribune.

The lawsuit was filed by Hameed Khan, a resident of Chota Lahore, through his counsel Babar Khan Yousafzai, who argued in court that the reduction in taxes would make tobacco products cheap in the country and create health hazards.

It would also result in the closure of local tobacco companies, he said.

“Some 3,000 employees have lost their jobs over the last four months due to closure of some tobacco units,” the petitioner argued. “They have not taken the stakeholders on board before introducing the third tier of taxation through the Statutory Regulatory Order (SRO).”

The court accepted his petition for hearing, issued a stay order against the new tobacco-taxation rules and directed respondents to submit their replies by January 18.

The respondents in the case were said to comprise the government of Pakistan, through the finance secretary, the Federal Board of Revenue (FBR), the Ministry of Justice and the Federal Minister of Health Services.

Aiming to combat the country’s illegal trade in cigarettes and the consequent ‘massive duty evasion’, the FBR issued the SRO in June to introduce a third tier in the taxation structure of the tobacco industry. The decision, the petitioner feared, would lead to a reduction in cigarette prices and increase demand.

The plaintiff asked the court to issue an order for revoking the recent SRO and applying cigarette tax at the rate of Rs33.4 per pack.

He claimed that with the introduction of the third tier of taxation, multinationals were able to sell cigarettes cheaply and increase their sales.

“High prices are the only way to counter cigarette consumption in the world,” the petitioner told the court. “But in Pakistan, multinationals are given a free hand to reduce prices while benefitting from lower taxation.”

“Pakistan is the only country where taxes on high saleable brands have been reduced by 33.3 percent,” he argued. “This is also a breach of the World Health Organization’s convention on tobacco control.”