The illicit volume in the Tobacco sector has increased massively following the Federal Excise Duty (FED) increase in February 2023 by the Government of Pakistan.
The representatives of Pakistan Tobacco Company in a media briefing informed that the sales volumes for March ’23 have completely flipped where legitimate industry sales stand at 1.84 billion sticks in March as opposed to 4.84 billion sticks in Jan ’23 (pre-mini budget).
Similarly, the illicit volume has expanded exponentially from 2.85 billion sticks in Jan ’23 to 4.8 billion sticks in March ’23.
This demonstrates a shift of 3 billion sticks from the formal sector to the illicit sector which has deprived the govt of invaluable revenue at this trying juncture, they explained.
They further said that before the mini-budget in February, the excise on a pack of Tier 1 cigarettes was Rs. 130 whereas it was increased to Rs. 330 in the mini-budget amounting to an increase of 154%.
Similarly, the rate of excise for a pack of Tier 2 cigarettes was increased from Rs. 41 to Rs. 101, amounting to an increase of 146%.
Despite the drastic increase in both tiers, the Retail Price Threshold was increased by a meager 35% to Rs. 9,000 per 1,000 cigarettes.
This has created an unusual anomaly and has created a dead zone for any cigarette pack to be priced between Rs 180 and Rs 330.
The representatives shared that between July ’21 till March ’22 PTC’s contribution to the national exchequer was Rs. 85 billion whereas the revenue collected during the same period this year showcases a meager increase of only 14% to Rs. 97 billion, despite an excise increase of over 200% in both tiers since June 2022.
Such measures are constantly discouraging investment and are threatening the Large-Scale Manufacturing (LSM) sector in Pakistan, they added.
PTC representatives also warned that such measures by the government are not sustainable for the LSM sector in the long term and will have detrimental effects on the economy.
The representatives told the media that PTC contributes over 80% of the revenue collected from the tobacco industry whereas only 2% is contributed by the illicit sector.
A sharp increase has been witnessed in the availability of smuggled cigarettes across the country at cheap rates, forcing the price-conscious consumer to cheaper smuggled illicit cigarettes.
A 30% increase in sales of smuggled cigarettes was recorded during March, they disclosed.
They said that more than 100 brands have flooded the market which has no graphical health warning and do not conform to the laws of Pakistan. Furthermore, they sell with impunity, flouting all regulations set by the Government of Pakistan without fear of being caught.
An iron hold on the illicit sector by the enforcement agencies is a need of the hour to plug this growing gulf between the legitimate and illicit sectors, they requested.
They also said that track and trace implementation continues to be the silver lining only if it is implemented in full letter and spirit and a nationwide enforcement campaign to curtail the menace of illicit cigarettes must be consistent and not sporadic to ensure the right results for the already ailing economy.
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Is someone try to find out those who owns the tobacco industry most, he will able to understand why in market older stock still selling on higher price and above all sensible person will be shocked why pmln and pti both will never take any action.