ISLAMABAD: Pakistan Tobacco Company (PTC) on Saturday said that an exponential increase in illicit cigarettes may lead to a business shutdown.
The official of PTC told the media in Jhelum that a steep decline in the volumes of the legitimate industry and a sharp increase in the sales of illicit cigarettes are being witnessed. “The impact of rising excise rates is now becoming evident in the market”, he added.
The excise increase in February 2023 coupled with the lack of enforcement has amplified the sale of illicit cigarettes including Duty Not Paid (DNP) and smuggled cigarettes.
Sharing the Pakistan Bureau of Statistics (PBS) recent data, he said volumes produced by the legitimate Tobacco Industry had declined by 50 percent in March 2023, which is the first month of sales after the exponential excise rate increase in February, whereas the total Large-Scale Manufacturing decline was half of the tobacco industry at 25 percent.
The impact has also been witnessed throughout the year whereas during the period June 2022 to March 2023, the legitimate tobacco industry suffered a huge loss in production of 24%, three times the size of what the LSM sector witnessed.
This impact has led to the down-trading of consumers from legitimate cigarette brands to tax-evaded cheaper options, which are locally manufactured DNP cigarettes and undocumented, smuggled cigarettes.
Since January 2023, the volumes of DNP cigarettes and smuggled cigarettes have shot up by 32.5% and 67% respectively. This has led to the illicit sector growing to upwards of 42.5% of the total market.
In 2022-23, the share of the legitimate tobacco sector was 41.4 billion sticks while the illicit sector’s share was 41.6 billion sticks.
However, after a recent irrational hike in FED on the tobacco industry, it is projected that the share of the legitimate tobacco sector in 2023-24 will be 29.6 billion sticks while the illicit cigarette share will reach 53.4 billion sticks in 2023-24. This means that 11.8 billion sticks will shift to illicit cigarettes.
Dispelling the impression created by so-called NGOs that the illicit cigarette industry share is only 9-18 percent, PTC officials said that the figures of such non-existent NGOs have no relevance. All these figures are neither authentic nor backed by any actual market research.
Senior Business Development Manager, PTC Qasim Tariq shared that because of a more than 200% increase in excise in February 2023, it will be the first time in the history of the country that the tax loss caused by the illicit sector in the fiscal year will be more than the legitimate industry’s contribution to the national exchequer.
If the current fiscal regime prevails, damage to the national exchequer, as well as the legitimate industry, will be immense and hard decisions will have to be taken.
A key initiative to curb illicit trade was the implementation of Track & Trace in the tobacco industry, however, despite multiple directives by the Prime Minister for across-the-board implementation of Track and Trace nationwide, it remains a distant dream.
Local manufacturers continue to flout the rules and regulations of the country with impunity.
This is further fuelled by advertising and promotion campaigns by illicit manufacturers by offering cash prizes, giveaways, and merchandise to consumers, which is prohibited. An aggressive and effective enforcement campaign must be undertaken to curb this menace.
Tariq shared that the company has informed the FBR that it is exploring the option of re-exporting four of its machines in its manufacturing units owing to the loss of sales volume by the legitimate industry. Fiscal interventions and enforcement must go hand-in-hand to control the growing menace of the illicit sector.
As per the latest industry standards, if all conditions remain the same, the illicit sector will approximately double in comparison to the legitimate sector by next year. This will not only have irreconcilable losses for the legitimate industry but also for the country due to job losses and reduced investment at a time when the country is already facing intense financial constraints. (APP)