154pc hike in FED: Tobacco giants fear increase in illicit market share

ISLAMABAD: Two tobacco sector multinational giants apprehend that the massive hike of 154 percent in the Federal Excise Duty (FED) on cigarettes might escalate the market share of illicit/duty non-paid (DNP) cigarettes from the existing level of 37 percent to 70 percent.

The Pakistan Tobacco Company and Philip Morris have conveyed their fears to the government that the tax revenues might witness a surge of only 10 percent. However, the government has estimated that 154 percent hike in FED on tobacco will fetch Rs60 billion in additional revenues. This can only happen if the share of DNP did not increase. If the share of illicit cigarettes went up, then all projections made by the FBR will dash to the ground.

“Without effective enforcement against Duty Non-Paid cigarettes, the FBR’s efforts for generate the desired revenues by hiking the FED will fail in achieving the set goals”.

The government has massively jacked up the rate of Federal Excise Duty (FED) on tier-1 cigarettes from Rs6.50 per stick to Rs16.50 per stick and for tier-II, the rate of FED increased from Rs2.20 per stick to Rs5.05 per stick with immediate effect.

The excise for tier-1 pack will jack up from the current excise of Rs130 to Rs330 per pack with effect from February 14, 2023. It witnessed an increase of Rs200 per pack for tier-1 cigarettes and it went up by 154 percent.

The excise rate for tier-2 pack has gone up from Rs60 to Rs101 per pack, which will witness a surge by Rs60 per pack or 146 percent increase in price.

Total tax for tier-1 per pack has been increased from Rs164.5 per pack to Rs420.6 per pack. There has been an increase of Rs256.1 per pack for tier-1 cigarettes.

Total tax for tier-II for has gone up from Rs57.3 per pack to Rs139.9 per pack.

The excise tier threshold will be increased from Rs156 to Rs212 with effect from February 14, 2023.

The minimum legal price, excluding GST, increased from Rs59.9 per pack to Rs81 per pack. The minimum legal price per pack including GST went up from Rs70.1 per pack to Rs95.6 per pack. It is estimated by the giant multinational companies that the government revenues would be increased from Rs182 billion to Rs200 billion. Total tax revenues estimated for next fiscal year 2023-24 stood at Rs223 billion with new taxation rates from earlier estimates of Rs206 billion.

They feared that the realised revenues as percentage of revenue potential from the industry might witness a major dip as it could be reduced from 66 percent to 29 percent with imposition of new FED rates.