Tobacco industry: Govt, SIFC asked to keep excise duty stable in budget

ISLAMABAD: British American Tobacco (BAT) has cautioned the government and Special Investment Facilitation Council (SIFC) to keep Excise Duty stable in the coming budget otherwise their footprints might shrink in the country.

They warned that if the government increased federal excise duty by 25 percent it would result in further slashing the share of legit industry from 34 billion sticks to 29 billion sticks in the next budget and the revenue might decrease from Rs 265 billion in the outgoing fiscal year to Rs 240 billion for the next budget 2024-25. The government had hiked the Federal Excise Duty (FED) by 200 percent for the cigarette industry in the last two fiscal years after which the share of tax tax-paying sector shrank while tax tax-evaded sector witnessed an unprecedented boom.

The BAT operating and known as Pakistan Tobacco Company (PTC) also reveals that it was the first time in the country’s history that the share of illicit cigarettes exceeded that of the legit and tax-paying multinational companies.

“The volume of the legit and tax-paying sector has dropped dramatically as their volume reduced to 38 percent while the share of illicit has gone up to 60 percent” visiting Michael Dijanosic, Regional Director of Asia Pacific, Middle East and Africa and Wael Sabra Area Director at BAT stated on Tuesday. Michael said that the distorted system could break down the taxation system.

The business hub established in Lahore is providing services in different areas and the BAT has so far invested $5 million. The workforce will be expanded in three years and the workforce will be increased to 1,500 and later to 3000. Michael said that the PTC exported $150 million and contributed around Rs 700 billion to the national kitty in different taxes. Now the PTC has launched VELO, a nicotine-free product which will be exported to Japan to fetch $90 million in exports.

Dwelling upon severe challenges faced by the legit industry, they said that met with the Prime Minister and SIFC high-ups and all of them gave patience hearing to their viewpoint but they would be awaiting the budget announcement.

Citing the example of a locally manufactured brand, the PTC official said if all taxes and duties were included its minimum price should be set at Rs 179 for 30 cigarettes but it is available in the market at Rs 150 per pack. He said that out of illicit 85 percent of cigarettes sold in the markets were locally manufactured while 15 percent were being smuggled.

Total consumption of cigarette sticks stood at 80-81 billion and the market size is estimated at Rs 565-570 billion. Now the government is going to collect Rs 265 billion for the current fiscal year while the illicit sector is evading taxes of Rs 300 billion on per annum basis, he said and added that the sustainability of the sector would depend upon maintaining the status quo by keeping federal excise duty at the existing level coupled with placement of effective enforcement. The BAT high-ups warned that if the excise duty was further hiked their modelling showed that the tax collection would saturate and the FBR collection could go up only if the duty and taxes were reduced.

Wael Sabra, Area Director at BAT said that if the FED was kept unchanged and enforcement was in place the FBR revenue could be increased from Rs 265 billion to Rs 315-320 billion in the next budget. He said that Uzbekistan and Malaysia were good examples as the Uzbek government took steps after which the share of illicit came down from 24 percent to 11.4 percent.

In Pakistan, they said that 50 percent capacity for boosting exports remained idle, he said and added that two PTC machines were being refurbished and exported It was also viewed that taxes imposed on Tier-1 cigarettes were higher than the recommended limit of WHO while those on Tier-2 were less than the limit.