Hike in excise duty: International cigarette brand cuts business size in Pakistan

ISLAMABAD: An international brand of tobacco sector has decided to reduce its activities in Pakistan by 25 percent in the aftermath of a massive hike in the excise duty rate by over 200 percent during the current financial year.

This international brand has formally conveyed to the Federal Board of Revenue (FBR) that they were re-exporting four production machines out of a total installed 17 making and packing machines from their units operating in the country. They were re-exporting these four machines to any other production facilities in other parts of the world.

The sources said that the large-scale manufacturing (LSM) data also demonstrated that the growth of the formal tobacco sector witnessed a decline of 50 percent but the consumption of cigarettes did not decrease in the current financial year.

This clearly shows that cigarette consumption was shifting from a tax-paying sector to illicit cigarette manufacturers at an accelerated pace. The re-exporting of four machines indicates that the international brand will have to lay off its workforce.

The FBR has conveyed that the updated status of cigarette-making/packing machinery and tobacco-processing machinery for the factories as of April 30, 2023. The recent unprecedented increase of excise rates on cigarettes by over 200 percent since June 2022 has adversely impacted the legitimate industry. As a consequence, the sale of duty not paid (DNP) and smuggled products have increased significantly. Based on the latter we have seen a significant decrease in demand for legitimate tax-paid cigarette sales, while little to no action was witnessed against DNP in the market.

Keeping in view the facts that the legitimate tax paid volumes are declining, they are left with no other option but to rationalize production facility.

“As a first step, they are working on the option of re-exporting the making/packing machinery. Kindly note that upon the completion of the requirements of re-exporting further details will be shared accordingly as prescribed under the Excise Act, 2005 and Rules made thereunder,” it added.