The illicit sector now holds a major share of 54 percent of the cigarette market as compared to a 46 percent share of excise duty-paid brands, causing an annual loss of Rs. 300 billion to the national kitty.
This was one of the key findings of the research study titled, ‘Pakistan Cigarette Market Assessment 2024’ launched by the Ipsos Pakistan here on Thursday.
The report represented a comprehensive survey of over 1,000 retail outlets across all four provinces of Pakistan, thoroughly covering both urban and rural areas.
Legitimate Cigarette Trade Declining
Key findings highlight a significant shift in market dynamics, including a projected decline in the market share of legitimate cigarette brands and an increase in the presence of illicit brands, posing severe implications to the national revenue and sustainability of legitimate businesses.
Easy availability of low-priced smuggled and tax-non-paid cigarettes all across Pakistan, non-compliance with the Track & Trace system, cigarette sales below the minimum legal price (MLP), price disparities, and numerous other crises had not only put down the compliant cigarette industry to its knees but was also denting national exchequer with an annual loss of Rs. 300 billion.
While visiting retail outlets in these areas, Ipsos checked the availability and prices of tax-non-paid and smuggled cigarette brands and estimated the market shares, compliance of Track & Trace (T&T) and minimum legal price (MLP), price disparities, and new phenomena in the market.
Later Ipsos also presented an analysis of the information collected from the markets of these areas. Furthermore, in the wake of increased enforcement, an observation study was also conducted across the sample to corroborate the findings.
“Year on year, 6 brands have been included in the Track and Trace list however there have been numerous instances where the same brands were being sold without stamps. However, the failure to implement Track and Trace is evident as 37 news brands, bringing the total to 165 brands, in the market do not have track and trace stamps.”
While exposing another failure of the concerned authorities, the research mentioned that in Pakistan around 104 cigarette brands were being sold below the MLP while 45 smuggled brands were being sold above the MLP. “53 percent of the cigarette brands available in the market are being sold below the MLP”, the study added.
Tax-Evaded Cigarettes Are King
In a bid to show a huge margin of disparities in the market, the research highlighted that a locally manufactured tax-evaded pack of a famous brand was being sold in the market for Rs. 120, while another pack of a famous smuggled brand was priced at Rs. 165. Both brands were easily available across the surveyed areas. Contrary to that, the most popular tax-paid brands were being sold in the market for Rs. 220-550. Nearly 95 percent of the cigarette market lies between Rs. 65–220 price bracket per pack.
The research said that in the surveyed areas most of the locally manufactured tax-evaded brands were also available in packs of 25 and 30 cigarettes. This availability was not only encouraging the retailers towards single-stick sales but also was providing additional financial benefits to them in the form of discounting.
While presenting the overall market projections, the study said that illicit manufacturers and smugglers would continue to capture the market while the duty-paid brands would keep on taking a regular hit.
While analyzing the overall situation, the study said that the consumers were constantly shifting from duty-paid to locally manufactured tax-evaded and smuggled cigarette brands which is why the overall illicit share, which was recorded 48 percent in last year’s Ipsos syndicated research, this year expected to reach 56 percent by June 2024.
While concluding the scenario, the study said, “Cigarette companies in Pakistan are selling 79-81 billion sticks annually. This means that approximately 2.5 billion cigarette packs are evading the tax net. This tax evasion is causing the national exchequer to lose Rs. 300 billion annually.”
