Data from the Pakistan Bureau of Statistics indicates a 40% decrease in legal cigarette production over five months, exacerbated by an increased price disparity between legal and illegal cigarette markets.
This decline, as reported by Express Tribune, is primarily due to the raised excise duty, resulting in a 39.31% production drop from July to November in the current fiscal year, a rate fourfold higher than the average decrease observed in other large-scale manufacturing industries.
In contrast, the overall large-scale manufacturing output saw a modest decline of 0.80% during the same period, highlighting the tobacco industry’s unique challenges.
The sector’s total output reduction stood at 39.31% for July to November 2023, with tax-compliant tobacco companies reporting a 28.4% production decrease in the last fiscal year.
Additionally, the average monthly production of legal cigarettes fell sharply from 4.41 billion in the first nine months of 2022 to 2.836 billion in the corresponding months of 2023.
A significant factor contributing to the industry’s financial strain is the inadequate enforcement of the Track & Trace system, leading to revenue losses of over Rs310 billion, writes Express Tribune.
Syed Saifullah Kazmi, Head of Investment Banking at Intermarket Securities, highlighted that legal tobacco companies paid Rs241 billion in taxes during the current financial year.
However, he pointed out the critical issue of Rs310 billion lost to tax evasion by illegal manufacturers, emphasizing that these funds could have supported economic improvements.
Kazmi advocates for the full implementation of the Track & Trace system, rigorous enforcement against the illicit trade at all levels, particularly retail, and the introduction of fiscal policies to mitigate illegal tobacco trade.