Pakistan - Tobacco Reporter

Activists Lament Tax Plans

Pakistan’s decision to maintain cigarette tax rates at their current level represents a missed opportunity, according to health activists, reports Business Recorder.

Speaking at a forum organized by the Society for the Protection of the Rights of the Child, former Federal Minister for Information and Broadcasting Murtaza Solangi said the revenue could have been invested in public health, easing the economic burden on Pakistan’s healthcare system.

Instead, he said, maintaining current tax rates benefits cigarette manufacturers without additional excise tax contributions, undermining tobacco control efforts and worsening the public health problems caused by tobacco use.

“The government’s decision to spare the cigarette industry from any tax hike, despite the need to generate additional revenue to address the fiscal deficit, is concerning,” said Muhammad Asif Iqbal, director of the Social Policy and Development Center.

He said that the government was unlikely to achieve its cigarette tax collection target of PKR324 billion ($1.16 billion) for 2024-2025 at current rates.

Malik Imran Ahmed, country head of the Campaign for Tobacco Free Kids, said the prevailing rules allowed cigarette manufacturers to increase consumer prices without contributing more to excise tax revenue.

This situation, he said, not only undermines tobacco control efforts but also risks exacerbating the public health problems caused by tobacco consumption.

July 7, 2024

Pakistan Urged to Block Small Pack Exports

The African Tobacco Control Alliance (ATCA) has urged Pakistan to prevent British American Tobacco from exporting cigarettes in packs of 10 sticks to Sudan, reports The Independent.

Pakistan prohibits the sale of cigarettes in such packs on its domestic market. BAT subsidiary Pakistan Tobacco Co. (PTC) has asked the government to make an exemption for a large order from Sudan, which permits the sale of 10-stick packs on its territory.

In its statement, the ATCA urged the Pakistani government to reject PTC’s request, emphasizing the need to protect children from the dangers of smoking.

According to the ATCA, the 20-cigarette per-pack rule is the global standard for the protection of children. Because packs with fewer than 20 cigarettes are less expensive, the argument goes, it is more likely that underage buyers will purchase them. The ATCA refers to such packs as “kiddie packs.”

At least 82 countries have laws requiring a minimum of 20 cigarettes a pack.

“BAT is pushing you to change regulations so that it can manufacture 10-stick cigarette packs and export them to Sudan, the ATCA wrote in its letter to the government of Pakistan. “However, the WHO Framework Convention on Tobacco Control in its Article 16 calls on parties to prohibit the sale of cigarettes in small packets, which increases the affordability of such products to minors. Consequently, Pakistan as a party to the convention should not allow manufacturing of 10-stick cigarette packs.”

The organization condemned BAT’s explanation that the 10-stick packs will be sold only in Sudan, noting that if the tobacco giant is allowed to succeed with this plan in Sudan, other African countries would be next. “It is unconscionable that BAT thinks it is ok to change a law on one continent in order to target vulnerable populations on another,” ATCA wrote.

“In Sudan and other countries in Africa, people need food, medicine and other lifesaving supports. What they do not need is kiddie packs of cigarettes that put them at increased risk of tobacco addiction, diseases and death. And we know that once BAT gets kiddie packs into one country, they will make their way across Africa.”

July 7, 2024

Industry Cheers Tax on Acetate Tow

Legally operating tobacco companies have welcomed Pakistan’s plan to impose a federal excise duty (FED) on acetate tow, reports The Express Tribune.

While presenting the federal budget in the National Assembly on June 12, 2024, Finance Minister Muhammad Aurangzeb proposed imposing an FED of PKR44,000 ($158) per kg on acetate tow, a basic raw material used in manufacturing filters.

Aurangzeb said the recommended FED would burden only the informal sector. Because Pakistan does not produce acetate tow, cigarette manufacturers import the material from other countries.

During his presentation, the minister lamented the widespread availability of illicit, smuggled and tax-evaded cigarettes in Pakistan.

The market share of illicit cigarettes has grown to 63 percent at present from around 40 percent a few years ago. While at least 24 cigarette manufacturers operate in Pakistan, less than a handful are registered with the government. The two leading formal tobacco companies alone pay 98 percent of the total tax collected from the cigarette industry. Some politicians are reportedly involved in the manufacture of undocumented cigarettes.

One official said the government could potentially collect PKR550 billion from cigarette manufacturers if it succeeds in bringing the out-of-tax-net makers into the tax net.

Earlier governments imposed heavy taxes on cigarettes to discourage people from smoking. However, instead of decreasing cigarettes sales, the strategy mostly diverted smokers to non-tax-paid cigarettes.

Cigarette manufacturers have been urging the government to crack down on illicit cigarette sales and more forcefully enforce the country’s track-and-trace system. They say that half-hearted implementation has badly hit the formal sector while providing an opportunity for illicit cigarette manufacturers to thrive.

June 14, 2024

Pakistan Urged to OK Small Packs for Exports

Pakistan Tobacco Co. (PTC), a BAT subsidiary, is lobbying the Pakistan government to allow export of 10-piece cigarettes packs to Sudan, reports The Guardian. Pakistan is one of more than 80 countries that prohibits the sale or manufacture of 10-piece cigarette packs. Sudan, by contrast, permits such packs.

In a letter to the government, PTC said it “received a new export order to manufacture for Sudan, which includes packs of 10 cigarettes.”

PTC told the government that exempting export orders from the 10-cigaratte pack ban would benefit Pakistan as the order is worth $20.5 million and could be repeated.

Health activists urged the government to deny the request. “It is beyond shameful that British American Tobacco is seeking to alter the law in Pakistan so that it can flood an African country in crisis with cheap cigarettes,” said Mark Hurley, vice president of the Campaign for Tobacco-Free Kids. Sudan is currently in the midst of a civil war.

According to Hurley, over 80 countries have banned sales of small packs, requiring at least 20 cigarettes per pack, “because evidence shows these cheap packs are used to target kids and vulnerable populations.”

“Exploiting not only this knowledge but a country facing a humanitarian crisis is the behavior of a company that will truly stop at nothing to sell and addict more people to cigarettes,” he said.

BAT countered that the export order was intended to replace domestic manufacturing by its Sudanese subsidiary Blue Nile Cigarette Co. (BNCC), which is based in Madani, where there has been heavy fighting in the civil war.

“To ensure the continuity of products to meet consumer demands in Sudan, which predominantly operates in cigarette packs of 10, Pakistan was given the export order to supply to BNCC,” said a BAT spokesperson. “The clearance for the export order of cigarette packs of 10 from Pakistan to Sudan is pending regulatory approval by the government of Pakistan. The clearance complies with all local laws and regulations in Sudan.

“For any products manufactured by BAT, we abide by strict marketing principles to prevent marketing and sales to underage [consumers]. These measures include prominent 18-plus age warnings on packaging as well as our communications.”

June 11, 2024

Tax Hike Diverted Cigarette Sales: LUMS

Pakistan’s 2023 federal excise duty (FED) hike on tobacco products has diverted rather than reduced cigarette consumption, reports The News International, citing recent research.

In 2023, the government announced a significant cigarette tax hike, prompting tobacco companies to more than double their cigarette prices.

The fiscal measure aimed to boost revenue and discourage smoking. However, a recent study conducted by the Lahore University of Management Sciences (LUMS), suggests it has achieved neither objective.

Instead of lowering smoking rates, the increased prices have prompted consumers to source their cigarettes from informal sources, a development that will likely cause the government to miss PKR300 billion ($1.08 billion) in tax earnings this year, according to LUMS.

The LUMS study found that the share of duty-paid cigarettes shrank to 42 percent over the past two years.

“Government has implemented various initiatives to address the extent of illicit sector to bring more companies and illicit sector under tax net,” said LUMS Associate Professor of Economics Kashif Zaheer Malik. “These, however, have not been successful in reducing illicit trade in Pakistan.”

In light of Pakistani smokers’ profound price sensitivity, the LUMS report urged the government to reconsider its excise tiers. It also said the success of Pakistan’s track-and-trace system would depend on an all-encompassing rollout and consistent enforcement.

Only a handful of Pakistan’s cigarette manufacturers have implemented the new system.

In related news, the government of Pakistan’s Khyber Pakhtunkhwa (KP) province announced a 400 percent tobacco tax increase.

Civil society groups welcomed the measure. “This substantial increase is projected to generate over PKR2 billion annually, which will be dedicated to enhancing health facilities across KP,” Blue Veins and the Provincial Alliance for Sustainable Tobacco Control wrote in joint statement.

Tobacco growers warned the tax hike would destroy the sector. “The farmers can’t afford this and will stop growing tobacco,” Pakistan Tobacco Board member Rustam Khan was quoted as saying by The News International.

“Tobacco crop is the only cash crop of the province. And around 1.2 million people in the province depended on it,” said Khan, adding that more than 75,000 farmers were involved in tobacco cultivation.

Tobacco taxation has been a contentious topic in Pakistan recently. In May, market leader Pakistan Tobacco Co. threatened to cease operations in the country if the government further increases cigarette taxes.

June 5, 2024

BAT Threatens to Pull Out of Pakistan

British American Tobacco may pull out of Pakistan if the government further increases cigarette taxes, a company representative warned during meetings with Prime Minister Shehbaz Sharif and the Special Investment Facilitation Council national coordinator General Sarfraz Hussain.

According to BAT, existing taxation has already caused its sales in Pakistan to slump by 38 percent and increased the size of the illicit market to 58 percent of nationwide cigarette sales. In the previous budget, the government significantly increased taxes on tobacco, which instead of curbing smoking resulted in shifting smokers from tax-paid expensive brands to cheaper illicit brands, the company noted.

“The past couple of years’ developments on fiscal policies have raised questions about the sustainability of the company’s operations in Pakistan,” Michael Dijanosic, BAT’s regional director for Asia Pacific, Middle East and Africa, was quoted as saying by The Express Tribune.

If there is a repeat of last year’s tax increase, there is no reason the company should not exit Pakistan, he said.

The past couple of years’ developments on fiscal policies have raised questions about the sustainability of the company’s operations in Pakistan.

Michael Dijanosic, regional director for Asia Pacific, Middle East and Africa, BAT

The regional director said that the federal excise duty increased by 73 percent in real terms, making it unviable to do business. He also said that despite a 73 percent inflation-adjusted increase in taxes, the government’s revenues grew only 8 percent in real terms due to the slump in sales.

Any further increase in federal excise duty rates in the budget would bring the company’s factories to a standstill, the BAT official warned.

According to Dijanosic, the formal tobacco sector paid nearly PKR700 billion ($2.51 billion) in taxes to the government during the past five years. PTC has also invested in a global business center in Lahore and plans to expand operations if the government reviews its taxation policies.

PTC has been exporting cigarettes to numerous markets since 2019 and has so far earned $156 million for the country. For the next fiscal year, the company is targeting $60 million in exports, but one-third of the order is at stake due to the Ministry of Health’s reluctance to amend the Statutory Regulatory Order, which prohibits the sale of cigarettes in packs of 10 sticks, for export orders.

In March, the prime minister awarded the second-highest taxpayer award to PTC in all categories of taxes.

May 29, 2024

Growers Reject Official Tobacco Price

Tobacco grower representatives in Khyber Pakhtunkhwa province accused Pakistan’s federal government of violating the tobacco law by fixing the leaf price for the current crop below the previous year’s rate, reports Dawn.

Martial Law Order 487 requires the weighted average price for the tobacco crop of any year to be equal to or higher than the weighted average price paid to them for the crop of the immediately preceding year.

According to the grower representatives, the Federal Ministry of National Food Security and Research has set the minimum indicative price at PKR505 ($1.81) per kilogram for flue-cured Viriginia tobacco this year. Last year, the weighted average price was PKR709 per kilogram.

The growers said the move was a flagrant violation of the tobacco marketing law that should be immediately corrected.

May 26, 2024

Prices Slow Tobacco Consumption: Study

Cigarette sales in Pakistan dropped 18 percent following a price hike, reports The Nation citing a recent survey from Islamabad’s Centre for Research and Dialogue (CRD).

Pakistan’s total consumption, which includes taxed, smuggled and untaxed products, ranges from 72 billion sticks to 80 billion sticks annually.

“Pakistan has a long way to go in tobacco taxation,” said Maryam Gul Tahir, director of the CRD, noting that Pakistan has some of the world’s cheapest cigarettes. “Public health must be prioritized over industry interests.”

The World Bank recommends a uniform tax structure for all tobacco products to reduce consumption further and increase government revenue.

May 22, 2024

Illicit Market Smaller Than Suggested: WHO

Pakistan’s illicit cigarette market is smaller than the tobacco industry claims, according to the World Health Organization.

Nonetheless, the illegal sales still account for 23.1 percent of the country’s total cigarette trade, a survey by the global health body found.

Of the illicit cigarettes, 47 percent is smuggled, 45 percent is nontax paid and 8 percent is counterfeit.

According to the study, which is based on Pakistan Bureau of Statistics data, tax evasion on domestically produced cigarettes in 2015-2016 amounted to PKR53.8 billion ($193.16 million). Seventy percent of that share was evaded by the legitimate sector, the WHO study said.

Anti-tobacco activists have been pressing the government to raise tobacco taxes to 70 percent of the retail price, in line with WHO guidelines

“With over 60 percent of the population comprising youth, it’s crucial for the government to protect them from the ills of tobacco use,” said Malik Imran Ahmed, country head of the Campaign for Tobacco-Free Kids (CTFK), told Business Recorder.

He said the move would generate PKR200 billion in additional revenue by year-end, and help recoup healthcare costs associated with smoking-related illnesses.

May 17, 2024

Pakistan Urged to Raise Tobacco Taxes

Health activists want Pakistan to increase its Federal Excise Duty (FED) on cigarettes to 70 percent of retail prices, in line with international standards, reports Dawn. Achieving that level requires a rate hike of 37 percent.

According to proponents of the measure, raising taxes would not only reduce the burden on Pakistan’s healthcare system, but also earn the government much-needed revenue. They calculate that a 37 percent FED hike would generate an additional PKR60 billion ($215.7 million) from cigarettes for 2023-2024. Revenue collections from July 2023 to January 2024 reached PKR122 billion, with full year estimates exceeding PKR200 billion.

Backers of the increase reject tobacco industry arguments that tobacco tax hikes fuel illicit trade, suggesting that tobacco firms manipulate their reported production to influence tax policy.

According to activists, some 31.6 million adults currently use tobacco in Pakistan, resulting in more than 160,000 deaths every year, while smoking-related illnesses and deaths cost the country at least 1.4 percent of its GDP annually.

Antismoking groups are also urging the government to embed healthcare cost-recovery in tobacco tax policy through automatic adjustments to excise taxes, ensuring that they cover a certain percentage of the total health costs attributable to smoking.

May 13, 2024

Tag: Pakistan