Pakistan Losing Rs240 Billion Annually Due to Illicit Cigarette Trade

Fri Jun 02 2023
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ISLAMABAD:  Pakistan is losing Rs.240 billion annually due to illicit cigarette trade as it has reached 48% countrywide, a report of IPSOS said on Friday.

The report said the survey found that about two billion cigarette packs evaded the tax net in the South Asian country. It added that an increased share of illicit brands would lead the country’s authorities to miss tax collection targets. The report disclosed that 83% of cigarette brands in the market are without track and trace stamps.  The study maintained that two-thirds of cigarette brands were selling below the country’s Government-Mandated Minimum Legal Price.

“According to multiple resources, the report stated that the total tobacco sector in Pakistan sells 83 billion sticks annually. This means that 48% or approximately 2 billion cigarette packs are evading the tax net. This tax evasion is causing the National exchequer to lose Rs.240 billion annually. The further shift of consumers to illicit brands will lead the authorities to miss their tax collection goals.”

According to the report, the Federal Excise hike has caused a 33% increase in illicit market share and smuggling of cigarettes due to subsequent downtrading by consumers. Illicit Market share hence has increased from 36% in 2022 to 48% in 2023.

As per the findings of the study, the overall market share of legal cigarette brands is 52%, with PTC’s share of 40% and PMI holding 12% share of it. While the whopping 48% remaining market share is with illicit cigarette brands. Locally manufactured tax-evaded brands hold 38% illegal market share, while smuggled cigarette brands hold 10% of the illegal market.

The study assessed the implementation of the Track and Trace stamp on different cigarette brands, and it was found more than 83% of the brands collected from the sample were being sold without the Government mandated Track and Trace Stamp.

The survey found huge price disparities among Locally Manufactured Tax Evaded brands, smuggled brands, and legal duty-paid brands of cigarettes. The Minimum Price of Duty Paid brands was Rs150. However, locally manufactured tax-evaded brands and smuggled brands sell for as low as RsR30 and Rs60, respectively, flouting the MLP of Rs127.4.

A survey of 1000 shops in 10 districts across Pakistan (Karachi, Rawalpindi, Lahore, Faisalabad, Gujranwala, Multan, Peshawar, Hyderabad, Bahawalpur, and Sukkur) was conducted to check and analyze the availability and prices of locally manufactured tax evaded brands and smuggled brands while ascertaining estimated market shares through their visits.

This study was carried out in the wake of the huge increase in federal excise duty in the Finance Supplementary Act approved in February 2023. This drastic excise increase was reportedly aimed at generating additional revenues to meet IMF conditions.

 

 

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