IMF Taxes Draw First Blood on Tobacco Sector as Cigarette Prices See 250% Increase

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Pakistan’s tobacco sector has taken one on the chin as cigarette makers on Saturday notified huge price hikes of 250 percent per packet in response to the government’s implementation of the Rs. 170 billion mini-budget this week which saw the sales tax rate rise from 17 to 18 percent and a 150 percent increase in the rates of the Federal Excise Duty (FED) on cigarettes.

The retail rates of all big cigarette brands including Marlboro, Benson and Hedges, Gold Leaf, Capstan, Gold Flake, John Player, Dunhill, Embassy, and Capstan (Pall Mall version), have gone up with the cheapest retailing at Rs. 211 to the most expensive now on sale for Rs. 522-525 per packet.

Marlboro Lights Pakistan now retails for Rs. 500 per pack after the latest rate revision by the manufacturer hiked prices by Rs. 240 per packet. A spokesperson for Philip Morris Pakistan Limited told ProPakistani,

The proposed unprecedented tax hike for the tax-paying tobacco companies will effectively favor the already vast illicit cigarette manufacturers in Pakistan. This will also lead to significant shortfalls in Government revenue as the volumes will massively shift from the tax-paid sector to the non-tax-paid sector as often seen in the past.

During the period 2019-2021: the FED increase was to the tune of ~26%. During the current fiscal year 2022-23, FED on cigarettes was already increased by ~25%. The latest announcement increases FED on cigarettes by greater than 150% which will result in a price impact of more than ~250% for adult consumers versus Q1, 2022.

Local brands registered with the Pakistan Tobacco Company Limited (PSX: PAKT) are now retailing at much higher rates due to excise-led price increases. A packet of 20 Dunhill Switch cigarettes now costs Rs. 522.3 and retailers are selling it for Rs. 525-530 per pack.

Local favorites Dunhill Lights and Gold Leaf now cost Rs. 479 and Rs. 483 per pack, respectively. Embassy, which is a go-to brand for the hard-working labor segment of the country, now costs Rs. 212 per packet.

Here is the full list of PAKT rates notified with effect from February 18th, 2023:

Brand Outer Rate (Rupees) Packet Rate (Rupees)
Dunhill 20HL, Switch 5222.91 522.29
Dunhill Lights, 20HL 4787.93 478.79
Benson & Hedges 20HL 4799.31 479.93
Bensen & Hedges Lights 4799.31 479.93
Gold Leaf 20HL 4826.47 482.65
Gold Leaf SPL, 20HL 4793.86 479.39
Capstan FT 20HL 2107.59 210.76
John Player 2101.64 210.16
Capstan by Pall Mall Original 20HL 2117.37 211.74
Gold Flake KS FT 20HL 2117.37 211.74
Gold Flake KS FT 20SC 2117.37 211.74
Embassy FT 20SS 2117.37 211.74

Finance Minister Ishaq Dar recently tabled the supplementary finance bill in parliament which also enhanced the sales tax on cigarettes.

It should be noted that the Federal Board of Revenue (FBR) notified the FED on Tuesday with a 153 percent increase in the price of expensive brands from Rs. 6.5 to Rs. 16.5 per cigarette. For less expensive brands, the per stick increase is roughly 100 percent, from Rs. 2.55 to Rs. 5.1.

According to experts, the recent FED hikes are damaging to legitimate companies’ survival because their sales are declining. But one could notice that even though the mini-budget taxes are large and expectedly stingy, the tobacco industry has arguably raised prices above what was required by tax changes.

The industry has widened the per-packet price differentials by raising consumer rates significantly above the cost of the tax increase on more expensive products and absorbing the tax impact on cheaper products.

Time to quit? Share your thoughts in the comments below.

  • Nops not quitting. Just switching to smuggled ones which are now obviously cheaper and no tax would go to this imported government.

    • True that.
      The most pathetic so called good 4 nuthin finance minister dar is a goof.
      This is what happens when you won’t consider top economist in the country or dean’s of top universities but rather through the gauntlet to a munshi.
      Nepotism is at its worse.
      Time to look for better deals – be it smuggled cigz

  • thats will turn out to be a good move for millions. what better incentive can anyone have than this to quit now. do you really want to see rs. 30 burning everytime you lit up a cigarette? at least not me.

  • A decrease is demand will result in decrease in supply and price if stay as it is huqqa with fresh local Tobacco is what huge number of consumers in rural parts will opt for. Therefore either these tax paying multinational companies will stay and bear the loss or leave

  • Nothing will change. Only less demand during early days, switchover to smuggled ones and then once they don’t get accustomed to the taste of the switchover, the smokers will again revert back to their ‘desi’ favorites……. Its a temporary affair. Remember an addict can go miles to satisfy his cravings…..

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