‘Smuggled cigarettes’ market share jumps by 50pc after hike in FED’

ISLAMABAD: A volume of tax paying cigarettes has shrunk by over 60 percent in the aftermath of the imposition of a massive increase in federal excise duty (FED) by 154 percent through a mini-budget last February 2023.

It was disclosed by Pakistan Tobacco Company (PTC).

The monthly volume data shared by Pakistan Tobacco Company (PTC) also showed that the share of illegal cigarettes went up by 50 percent in the same period. It indicated that the FBR was going to face a major blow on its envisaged tax collection increase from the cigarettes industry for the current fiscal year.

There is a 200 percent increase in the availability of smuggled brands of cigarettes as 70 new brands emerged into the Pakistani market. The number of smuggled brands has crossed the mark of 100 since February 2023, following a surge in FED, said the representatives of PTC in a media brief on Wednesday.

They highlighted that the sales volumes in March have completely flipped where legitimate industry sales stand at 1.84 billion sticks as compared to 4.84 billion sticks in Jan prior to increase in the FED on cigarettes.

Similarly, the volume of tax evaded cigarettes has expanded exponentially from 2.85 billion sticks in Jan to 4.8 billion sticks in March. This demonstrated a shift of 3 billion sticks from the formal sector to the illicit sector which deprived the government of invaluable revenue at this trying juncture, they said.

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 percent increase in sales of smuggled cigarettes was recorded during March. More than 100 brands have flooded the market which has no graphical health warning and do not conform to the laws of Pakistan, said the representatives of PTC.

Before the mini-budget in February, the FED on a pack of tier 1 cigarettes was Rs130 which increased to Rs330 after 154 increase in the duty. Similarly, the FED rate on a pack of Tier 2 cigarettes increased from Rs41 to Rs101, amounting to an increase of 146 percent.

Despite the drastic increase in both tiers, the retail price threshold increased by a meagre 35 percent to Rs9,000 per 1,000 cigarettes. It has created a dead zone for any cigarette pack to be viably priced between Rs180 and Rs330, they claimed.

The representatives of PTC told the media that their company contributes over 80 percent of the revenue collected from the tobacco industry whereas only 2 percent is contributed by the illicit sector.

They suggested that an iron hold on the illicit sector by the enforcement agencies was a need of the hour to plug the growing gulf between the legitimate and illicit sectors.