Tax-evaded cigarettes witness phenomenal surge

ISLAMABAD: The share of tax-evaded cigarettes has witnessed a phenomenal surge in the shape of duty not paid, making it hard for the legit industry to survive in the existing circumstances.

They have suggested reducing the Federal Excise Duty (FED) which was hiked by 200 per cent in the last financial year and implementing the Track and Trace System across the board in a bid to revive the tax-paying cigarette industry. The share of illicit tobacco stands at 11 per cent through smuggling, 52 per cent through duty not paid on locally manufactured and 3 to 4 per cent on counterfeit. The two multinational giants PTC and PMI are earning profits but their volume has declined significantly so the sustainability of the tax-paying sector entered into the danger zone, the representatives of the tobacco industry have warned.

The representatives of the Pakistan Tobacco Company (PTC) on Monday expressed deep concerns over the sustainability of its business as a result of inappropriate policy measures and the alarming rise in illicit trade. The recent data released by the Pakistan Bureau of Statistics, the Large Scale Manufacturing (LSM) Index has highlighted a significant and concerning trend within the legitimate tobacco sector. According to the latest statistics, the production of the legitimate tobacco sector has fallen 40 times more than the overall LSM Output from July ’23 to November ’23, however, the consumption of cigarettes has remained stagnant. This distressing trend underscores the adverse impact of policy decisions that have disproportionately affected the legitimate tobacco industry. A comprehensive and balanced approach to ensure a level-playing field for the legitimate tobacco sector is imperative to ensure long-term sustainability.

Despite implementation of the Track & Trace System (TTS), the rising incidence of fake stamps being affixed on counterfeit packs of leading cigarette brands was also a key issue shared by the representatives. “Around 850 million counterfeit cigarette sticks are currently being sold across Pakistan including major metro cities like Karachi, Lahore, Islamabad and Rawalpindi. This figure stands equivalent to 42.5 million packs featuring fake stamps, resulting in a substantial loss of approximately Rs 5.7 billion to Pakistan,” said Qasim Tariq, senior business development manager.

Rising counterfeit cigarettes draw serious questions on the efficacy of the much-lauded Track and Trace System which is yet to be implemented across local cigarette manufacturers in Pakistan and Azad Jammu & Kashmir (AJK). The representatives have urged the law enforcement agencies (LEAs) with jurisdiction to conduct extensive enforcement at the retail level against this rising menace. They have also shared their concerns about a recent report making rounds in the media about missed revenue collection of the FBR. They say the claims made in the report are not only false but also raise questions regarding the intentions behind publishing such a report.

The report claims that the illicit sector is less than 10% across Pakistan. Surprisingly, this number goes against even what the FBR itself claims of illicit trade being more than 36.5% for the period in question. Secondly, the report claimed that the government revenue declined due to fiscal changes in the excise structure but stopped short of revealing the complete picture. Between 2012 and 2016, the government switched to a 2-tier structure from a 3-tier structure which was implemented in Pakistan in 1992. This caused revenues to fall by more than 25% due to the above-inflation excise increase in 2015-16 and illicit trade hovered close to 50% of the market, as it is today. To curb the menace of illicit trade, the government decided to re-introduce a 3-tier system which not only increased revenues by more than 40% but also discouraged illicit cigarette trade. An extensive government-led national anti-illicit trade strategy, effective fiscal measures and strict enforcement against illicit trade across the value chain with a key focus on the retail level is the need of the hour.