Sales of illicit cigarettes have surged following a massive tax hike on the legal cigarette industry, according to Philip Morris (Pakistan).
Muhammad Zeeshan, Chief Financial Officer and Executive Director of the company, Sunday warned that illegal trade is not only damaging the economy but also discouraging the documented sector. The government should create an environment that supports tax-paying organized industries, he said.
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Pakistan is currently facing significant economic challenges, and curbing illegal trade is essential, Zeeshan said. Philip Morris Pakistan is committed to supporting the country during these challenging times and is contributing to the economy by providing employment opportunities and contributing significantly to the national exchequer.
In an effort to address Pakistan’s twin deficit, the government has imposed an import ban to reduce the pressure on foreign exchange reserves. To reduce the budget deficit, tax rates have been increased in the supplementary budget, including a significant increase in federal excise duty on cigarettes.
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Cigarettes are already highly taxed in Pakistan, and the recent increase in federal excise duty has further widened the gap. Zeeshan pointed out that whenever taxes on legal cigarettes increase, the sale of illegal cigarettes also increases. The federal excise duty has been increased thrice this fiscal year, and it has impacted the legal cigarette industry significantly. The first quarter statistics reveal that the sale of legal cigarettes has declined by 50%, while the market share of illegal cigarettes has risen to 45% in just one month.
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Zeeshan warned that without curbing the illegal cigarette trade, a significant increase in the federal excise duty rate will never be effective. He urged the government to apply laws uniformly to the entire industry, implement digital monitoring of the track and trace system across all companies, and create a business environment that supports organized tax-paying industries.
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Pakistan currently has the second-largest market for illicit cigarettes in Asia, with a 40% share. However, due to the recent increase in federal excise duty, there are concerns that Pakistan may surpass Malaysia, which currently has a 50% market share of illegal cigarettes, and become the leading country in Asia.
