Illicit cigarette trade causing loss of Rs.44b to national exchequer

Sher Afzal

Despite FBR’s all-out efforts to clamp down illicit trade of cigarettes in the country, illicit cigarette trade is causing a loss of at least 44 billion rupees every year to the national exchequer.

On the other hand, measures to curb illicit trade pale in comparison. In 2019 non-duty paid cigarettes worth of PKR 1.8 Billion were confiscated. This is less than 2% of the total illicit market. Moreover this resulted in zero convictions nor any legal action taken against the culprits and does not serve as a meaningful deterrent.

“These tax-evading illicit cigarette manufacturers resort to violation of government ‘s tobacco control policies, by selling below the government mandated cigarette pack price, as well as, offering incentives to consumers, all of which is strictly prohibited by the law. In addition to this, these manufacturers copy other brands or under-declare their own production to gain an unfair advantage as a means of increasing their sales (and in turn furthering tax-evasion),” said a source.

It is pertinent to mention that the tax paying cigarette industry that provides PKR 115 Billion in just 2018/19 to the national exchequer, is shrinking every year. All the market share lost by legal tax paying sector was captured by non-tax paid and underpriced cigarettes.

“Tobacco Control advocates must understand the counterproductive repercussions of policies such as higher taxes, plain packaging and other measures that are exploited by illicit manufacturers to their advantage,” he reasoned.

“It is, therefore, imperative that all steps taken to curb cigarette consumption are made with groundrealities in view, as well as, efforts are taken to speed-track the implementation of tax stamps which will definitely enhance FBR’s ability to tackle illicit trade in Pakistan,” he added.

It is pertinent to mention that the Prime Minister of Pakistan Imran Khan has also identified in a speech, “Only two tobacco companies, with a market share of around 60% contribute 98% of the tobacco tax collection, whereas all other tobacco companies operating illegally contribute only 2% to the national exchequer despite having a market share of about 40%.”

“Government should take strict measures to counter the menace of illicit trade of cigarettes as it is not only hurting the economy but also nullifying Government’s efforts for tobacco control,” he added.