Following the excise increase in February by the Government of Pakistan, March marked the first complete month of sales under the new regime and the results are dismal. The industry has witnessed a sharp increase in the incidence of illicit cigarettes generally and smuggled cigarettes specifically. During a media briefing session by representatives of Pakistan Tobacco Company Limited (PTC), they shared results of recent excise increases for the cigarettes industry.
Before the mini-budget in February, the excise on a pack of Tier 1 cigarettes was 130 rupees whereas it was increased to PKR 330 in the mini-budget amounting to an increase of 154%. Similarly, the rate of excise for a pack of Tier 2 cigarettes was increased from PKR 41 to PKR 101, amounting to an increase of 146%. Despite the drastic increase in both tiers, the Retail Price Threshold was increased by a meagre 35% to PKR 9,000 per 1,000 cigarettes. This has created an unusual anomaly and has created a dead zone for any cigarette pack to be viably priced between PKR 180 and PKR 330.
The representatives shared that between July ’21 till March ’22 PTC’s contribution to the national exchequer was PKR 85 Bn whereas the revenue collected during the same period this year showcases a meagre increase of only 14% to PKR 97 Bn, despite an excise increase of over 200% in both tiers since June 2022. Such measures are constantly discouraging investment and are threatening the Large-Scale Manufacturing (LSM) sector in Pakistan. Such measures by the government are not sustainable for the LSM sector in the long term and will have detrimental effects on the economy. The representatives told the media that PTC contributes over 80% of the revenue collected from the tobacco industry whereas only 2% is contributed by the illicit sector.
During the media session, representatives from PTC highlighted that the sales volumes for March ’23 have completely flipped where legitimate industry sales stand at 1.84 Bn sticks in March as opposed to 4.84 Bn sticks in Jan ’23 (pre-mini budget). Similarly, the illicit volume has expanded exponentially from 2.85 Bn sticks in Jan ’23 to 4.8 Bn sticks in March ’23. This demonstrates a shift of 3 Bn sticks from the formal sector to the illicit sector which has deprived the govt of invaluable revenue at this trying juncture.
A sharp increase has been witnessed in the availability of smuggled cigarettes across the country at cheap rates, forcing the price-conscious consumer to cheaper smuggled illicit cigarettes. A 30% increase in sales of smuggled cigarettes was recorded during March. More than 100 brands have flooded the market which has no graphical health warning and do not conform to the laws of Pakistan. Furthermore, they sell with impunity, flouting all regulations set by the Government of Pakistan without fear of being caught.
An iron hold on the illicit sector by the enforcement agencies is a need of the hour to plug this growing gulf between the legitimate and illicit sectors. Track and trace implementation continues to be the silver lining only if it is implemented in full letter and spirit. A nationwide enforcement campaign to curtail the menace of illicit cigarettes must be consistent and not sporadic to ensure the right results for the already ailing economy.
