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Illicit Volume in Tobacco Sector Booms After Federal Excise Duty

Following the Government of Pakistan’s hike in the Federal Excise Duty (FED) in February 2023, the illicit volume in the tobacco industry has dramatically expanded.

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In a media conference, Pakistan Tobacco Company executives revealed that the industry’s genuine sales for March 23 have entirely reversed from the 4.84 billion sticks sold in January (pre-mini budget) to 1.84 billion sticks in March.

The unlawful volume has also grown dramatically, going from 2.85 billion sticks in January 23 to 4.8 billion sticks in March 23.

This demonstrates a movement of 3 billion sticks from the legal to illegal markets, depriving the government of priceless funds at this challenging time, they said.

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They added that the excise on a pack of Tier 1 cigarettes was Rs. 130 before the mini-budget in February, but it was raised to Rs. 330 in the mini-budget, representing an increase of 154%.

In a same vein, the tax charge for a pack of Tier 2 cigarettes was raised from Rs. 41 to Rs. 101, representing a 146% rise.

The Retail Price Threshold was raised by a pitiful 35% to Rs. 9,000 per 1,000 cigarettes, notwithstanding the stark increases in both categories.

This has produced an odd anomaly and established a price dead zone for cigarettes packs between Rs 180 and Rs 330.

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In spite of an excise increase of more than 200% in both tiers since June 2022, the representatives noted that PTC’s contribution to the national exchequer from July 21 through March 22 was Rs. 85 billion, while the revenue collected during the same period this year shows a pitiful increase of only 14% to Rs. 97 billion.

These actions are continuously deterring investment and endangering Pakistan’s large-scale manufacturing (LSM) industry, they continued.

PTC representatives also cautioned that such government initiatives would not be long-term viable for the LSM sector and would have a negative impact on the economy.

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The officials told the media that PTC produces more than 80% of the tobacco industry’s earnings while the illicit sector only contributes 2%.

Cheap smuggled cigarettes are now more widely available throughout the nation, compelling the price-conscious consumer to buy cheaper smuggled unlawful cigarettes.

They revealed that the selling of illegal cigarettes increased by 30% in March.

They said that more than 100 brands have entered the market, none of which have a graphic health warning or follow Pakistani legislation. Furthermore, they violate all rules established by the Pakistani government without concern about getting detected, selling with impunity.

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They demanded that the enforcement agencies have a firm grip on the illegal sector in order to close the gap between the legal and illegal sectors, which was widening.

A nationwide enforcement campaign to stop the spread of illegal cigarettes must be consistent and not sporadic to ensure the right results for the already troubled economy, they added. Track and trace implementation continues to be the silver lining, but only if it is carried out in full letter and spirit.

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