British American Tobacco warns of potential exit from Pakistan over increasing taxes

British American Tobacco (BAT) has warned it may withdraw investment from Pakistan if the government further increases taxes on cigarettes in the upcoming budget. 

As per media reports, the company stated that current taxation policies have already led to a 38% decline in sales and a rise in the illicit cigarette market to 58%.

Michael Dijanosic, BAT’s Regional Director for Asia Pacific, Middle East, and Africa, highlighted concerns about the shrinking regulated tobacco sector and the expanding illicit market due to fiscal policies. 

Last year’s significant tax increase on tobacco products led to a shift from tax-paid brands to cheaper, illicit brands. Dijanosic warned that a repeat of such tax increases could force the company to exit Pakistan. 

He noted that despite a 73% increase in federal excise duty, sales have dropped by 38%, and government revenues grew only 8% in real terms due to reduced sales.

Dijanosic conveyed these concerns during meetings with Prime Minister Shehbaz Sharif and the Special Investment Facilitation Council (SIFC) national coordinator Lt General Sarfraz Hussain.

BAT, the largest global tobacco firm, and its local affiliate, Pakistan Tobacco Company (PTC), are projected to contribute Rs220 billion in taxes this fiscal year, out of the Rs265 billion expected from the entire tobacco sector. Over the past five years, the formal tobacco sector has paid nearly Rs700 billion in taxes.

The SIFC has recognised the issues faced by the tobacco sector, including the growth of the illicit cigarette market. A 25% increase in the federal excise duty could reduce tobacco sector revenues by 15% next fiscal year, potentially lowering collections from Rs265 billion to Rs225 billion, according to estimates.