Philip Morris shuts down tobacco manufacturing facility

KARACHI: Philip Morris Pakistan, an affiliate of Philip Morris International, on Monday announced shutting down one of its cigarettes manufacturing facilities with severance payments for 194 employees, as high taxation is widening price differential vis-à-vis untaxed cigarette brands.

Philip Morris said it will reorganise its cigarette-manufacturing operations, following a strategic review to optimise process efficiencies and operational effectiveness and to position itself for sustainable future growth.

“This will involve closure of the cigarette-manufacturing facility in Kotri, Sindh and will impact 194 employees, all of whom will be offered separation packages that will exceed what is required by law in order to facilitate them through this difficult transition period,” the company said in a statement.

The company will, however, keep operating its manufacturing facility in Sahiwal and green leaf threshing plant in Mardan. Market share of illicit cigarette brands in the tobacco industry in Pakistan crossed 41 percent in the fiscal year of 2016/17.

The primary source of cheap illicit cigarettes is locally-manufactured tax-evaded cigarettes, which were selling at a price gap of almost 170 percent versus the tax-paid legal cigarettes in 2016/17.

Pakistan ranked the No. 1 in illicit trade of cigarettes in Asia, with a total volume of 32.6 billion illicit cigarettes consumed in 2017, according to an Oxford Economics report. The government raised excise duty on cigarettes by 56 percent, leading to a tax-driven price increase for the tax paid cigarette segment, widening the price gap between legal and tax-evaded cigarettes, which currently stands at 130 percent. A sin tax on cigarettes is also on the anvil to discourage smoking.

“The wide presence of illicit cigarettes in the country has impacted the legal industry volumes, as a result our manufacturing footprint was in excess of requirement, hence PMPKL (Philip Morris Pakistan) decided to consolidate its current manufacturing footprint to achieve greater efficiency and for a sustained business outlook,” Joao Martins, managing director of Philip Morris Pakistan said.

“Our priority will be to treat all our employees fairly and with respect and dignity. We appreciate the contributions that each and every colleague has made over the years and we understand that this is difficult news for our employees.”

Philip Morris International acquired a majority stake in a local business in 2007. Currently, Philip Morris Pakistan has a tobacco-leaf threshing plant, two cigarette manufacturing factories and sales offices across the country, and employs around 916 people.