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ISLAMABAD: As a result of the supplementary finance bill, tabled in the parliament by the finance minister this week, suggesting to impose extra taxes and duties of Rs 170 billion on luxury goods such as cigarettes,the prices of various cigarette brands, such as Marlboro, Benson and Hedges, Gold Leaf, Capstan, Gold Flake, Dunhill, Embassy, and Morven Gold, have been increased manifold.
It may be mentioned here that the Federal Board of Revenue (FBR), on Tuesday had notified the FED increase on expensive brands from Rs6.5 per cigarette to Rs16.5 – an increase of 153%. For less expensive brands, per stick increase is from Rs2.55 to Rs5.05 – an increase of 98%.
Reacting to the huge jump in FED, one of the major multinational tobacco firms in Pakistan, Philip Morris Pakistan Ltd, has claimed that the latest increase of FED on cigarettes by greater than 150% will result in a price increase of more than 250%, as compared to the prices of the cigarettes in financial year 2022 (Q1, 2022).
“The proposed unprecedented tax hike for the tax-paying tobacco companies will effectively favor the already vast illicit cigarette manufacturers in Pakistan. This will also lead to significant shortfalls in Government revenue as the volumes will massively shift from the tax-paid sector to the non-tax-paid sector, as it has often been seen in the past, “said spokesperson Philip Morris Pakistan Ltd in a statement.
As per the company, during the period 2019-2021 the FED increase was to the tune of 26%. During the current fiscal year 2022-23, FED on cigarettes was already increased by 25% in an earlier development.
According to cigarette industry sources, the legitimate industry has been very clear on the stance that excise led price increases give rise to the sales of the illicit cigarette sector which still continues to operate in Pakistan.
As per details, there are more than 200 illicit cigarette brands being produced by over 40 companies in KPK and AJK. These companies are selling their products in a price range of Rs 35 to Rs. 60 per cigarette pack. They continue to openly flaunt the minimum mandated price law, which clearly states that cigarettes cannot be sold for less than Rs. 70 per pack of 20 cigarettes. But because these companies are not under the radar of the government, they get away with the violation.
The legitimate industry on the other hand, has to ensure compliance to the fiscal law and increases the price of cigarettes, which results in consumers down trading from legitimate company brands to illicit sector brands. As a result, sales of illicit/undocumented brands increase. Currently, this loss is estimated at more than Rs. 70 billion/year according to various tobacco brands.
The government’s stance on the matter, however, has been consistent across political leaderships. Starting from 2018, “sin tax” was initially imposed on the consumption of cigarettes. The same stance has later been picked up in the times of a financial crunch.
