Philip Morris claims tobacco sector at risk as illegal cigarette trade skyrockets

ISLAMABAD: Pakistan’s documented tobacco sector is facing a grave threat as the illegal cigarette market continues to skyrocket, resulting in substantial losses to the national exchequer. Muhammad Zeeshan, Chief Financial Officer and Executive Director of Philip Morris (Pakistan) Limited, voiced his concerns during a press briefing in Islamabad, highlighting the detrimental impact of the burgeoning illicit trade on government revenue and anti-tobacco policies.

Zeeshan expressed apprehension regarding the escalating illegal cigarette market, cautioning that if this trend persists, the government’s projected revenue targets will be severely undermined. He pointed out that the government had recently raised the Federal Excise Duty (FED) by 200% in the current fiscal year. Consequently, Philip Morris (Pakistan) experienced a staggering 70% decline in sales and a 60% decrease in production volume during March and April 2023. This downward trajectory is anticipated to continue due to the rise in illicit cigarettes.

During the quarter ended March 31, 2023, Philip Morris (Pakistan) contributed significantly to the economy by paying Rs 5,990 million in excise duty, sales tax, and other government levies. However, this marked a 16.4% decrease compared to the previous period, primarily due to reduced sales volume resulting from the price increase enforced by excise regulations in February 2023.

According to him, the steep rise in excise taxes has inadvertently provided an opportunity for illegal tobacco manufacturers to flourish, while compliant tax-paying companies suffer. Consequently, the government’s revenue objectives from the tobacco industry are expected to fall short of the targeted Rs 260 billion, likely remaining below Rs 200 billion.

It is important to note that the documented tobacco sector contributes a significant 98% of the total tax revenue from the tobacco industry, while illegal cigarette manufacturers only contribute a mere 2%.

Highlighting the urgency of the situation, he called upon the government to take decisive measures to combat the illegal cigarette market, which currently commands over 40% of the total market share and is projected to rise to 50%. If left unchecked, Pakistan could become one of the largest illicit cigarette markets globally. Premier Shahbaz Sharif has already acknowledged a staggering loss of Rs 100 billion due to tax evasion by illicit tobacco companies.

Furthermore, Zeeshan referenced research from Euro Monitor, a renowned firm, revealing that Pakistan held approximately 40% market share of illegal cigarettes in 2022, solidifying its position as the largest illicit cigarette market in South Asia.

According to him, the government’s track & trace system is only operational in a few tobacco companies. Once the stay order on the track & trace system was lifted, he urged the government to expedite its installation process. Effectively monitoring these facilities is crucial in curbing illicit tobacco trade.

Additionally, he appealed to the government to reconsider the substantial hike in FED, as it not only hampers fiscal revenue and legal cigarette sales but also fuels the growth of the illegal cigarette market, exacerbating the government’s current financial challenges.

Zeeshan underscored the importance of uniformly implementing laws regulating the tobacco industry, fostering a level playing field for legal cigarette companies. These measures are indispensable in safeguarding government revenue and protecting the documented tobacco sector from further decline. In conclusion, he called for swift action to address the pressing issues at hand.

 

 

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Ghulam Abbas
Ghulam Abbas
The writer is a member of the staff at the Islamabad Bureau. He can be reached at [email protected]

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