Illicit cigarettes poised to outpace legitimate market share in Pakistan, industry player cautions

ISLAMABAD: With illicit cigarettes, both smuggled and counterfeit, having already secured over 40 percent of the market, industry insiders are sounding the alarm that these contraband products may potentially surpass the legitimate tobacco industry within the next quarter.

The alarm bells have been ringing louder as concerns escalate over the proliferation of inexpensive, illicit cigarettes that conspicuously lack the mandated health warnings. The tobacco industry has sharpened its criticism of the Federal Board of Revenue (FBR) and the Ministry of Health for their perceived failure to effectively curb this growing menace.

Speaking at a significant media briefing convened at the Pakistan Tobacco Company’s (PTC) state-of-the-art facility in Swabi, Sami Zaman, the Head of External Affairs at PTC, did not mince his words as he shared his unease over the prevailing situation. Zaman stressed the pressing nature of the issue, issuing a stern warning that if left unchecked, illegal cigarette sales could soon secure over 50 percent of the market share in a matter of mere months.

Zaman emphasized that these illicit cigarettes, having evaded proper taxation and sidestepped the legally mandated graphic health warnings, manage to entice consumers with their lower price point and a spectrum of alluring flavors. He boldly criticized health activists for their apparent reluctance to voice opposition against the influx of smuggled and unregistered cigarettes into the country.

However, the industry’s woes have deepened due to a dire supply shortage. Despite initial promises to procure a substantial 85 million kg of raw tobacco from local farmers, a paltry 72 million kg was actually secured for the entire cigarette manufacturing industry. This scarcity-induced imbalance has sent tobacco prices skyrocketing during this season. The subsequent entry of investors into the tobacco sector has further propelled the minimum tobacco support price to unprecedented heights, soaring from an initial Rs 310 per kg to an astonishing Rs 1400 per kg, eventually stabilizing at a still significant Rs 1000 per kg.

Zaman underscored that while tobacco enjoys the protection of Pakistani law, the evident absence of a robust mechanism to counteract illegal tobacco acquisitions has inadvertently facilitated widespread price manipulation. To lend perspective, Zaman compared tobacco prices across different nations, citing rates such as $2.96 per kg in Bangladesh, $1.5 per kg in the Philippines, and $4.75 per kg in Pakistan. This erratic pricing landscape has inevitably led to restricted exports of processed tobacco, stifling the nation’s economic prospects.

In a concerted effort to curb smuggling, the government initiated a drastic increase of 160 percent in cigarette duties as of February 2023. However, this strategy fell short of achieving the intended revenue collection target of Rs 180 billion. Consequently, the government revised the revenue goal to a more ambitious Rs 249 billion, envisioning an additional Rs 60 billion due to the adjusted higher duties. Disappointingly, the eventual revenue collection for the fiscal year 2022-23 settled at a meager Rs 174 billion.

The legitimate cigarette industry has been dealt a severe blow, witnessing a substantial 44 percent plunge in cigarette manufacturing during June 2023, coupled with a significant drop of 28.4 percent from July 2022 to July 2023. This persistent downturn has raised apprehensions about the industry’s ability to weather future challenges and sustain itself.

Given this grim reality, regulatory bodies and policymakers must swiftly address the uncontrolled sale of illicit cigarettes. The implementation of effective enforcement measures and the creation of an environment conducive to the growth and resilience of the legitimate tobacco industry are now imperative steps in tackling this crisis head-on.