KARACHI: Pakistan has seen a significant rise in the sales of illicit cigarettes due to a massive hike in federal excise duty (FED), local media reported citing Philip Morris Pakistan’s Chief Financial Officer Muhammad Zeeshan on Sunday.
Zeeshan, speaking to journalists in Karachi, said the additional taxes by the federal government on cigarettes has led to a widening tax gap between legal and illegal cigarette sales. “Whenever the tax on local cigarettes increases, the sale of illegal cigarettes increases,” said the Executive Director of Philip Morris.
Pakistan has emerged as the second-largest country in Asia in terms of the illegal cigarettes’ sales, following Malaysia. However, Zeeshan said that without checking the illicit cigarette trade, an increase in Federal Excise Duty would never be so effective as the entire taxes burden is being borne by the organised and legal cigarette industry.
He asked the government to apply laws uniformly to the entire cigarette industry, implement track and trace across all the companies, and provide a business-friendly environment in which an organised tax-paying industry could thrive.
Zeeshan further said that the impact of this significant hike in excise duty has started to set in on the organised and legal cigarette industry, and, he added, the government itself will have to face the negative impact of this decision in the form of reduced tax revenue from cigarette industry. Statistics for the first quarter suggest that the sale of legal cigarettes has dropped by 50 percent, whereas, as was in the past, the increase in excise duty is benefiting illegal cigarettes. The recent hike in excise duty has doubled the price difference between legal and illegal cigarettes.
Increase in illegal cigarettes sales
With the quick increase in illegal sales, it is estimated that the government wouldn’t be able to achieve the tax collection target of Rs260b from the tobacco industry. The decline in legal cigarette sales will result in a meager collection of Rs170 billion, a figure that the government can easily foresee by analysing the taxes collected in March.
