Pakistan is among top Asian countries in the consumption of illicit tobacco with highest number of 21.8 billion illicit cigarettes consumed in the country annually.
In the reporting year, the domestic illicit use was 18.8 billion cigarettes, whereas the non-domestic consumption of illicit cigarettes stands at 3 billion, which is much lower than the domestic use.
The non-duty paid cigarettes contribute to rise in tobacco consumption by making cigarettes cheaper and more accessible. This makes it more attractive, especially to people who are price sensitive, such as youth and the poor. It also allows cigarettes to be sold as singles instead of packs, or from non-regulated outlets that make it more accessible to youth.
Heavy taxation on the legal tobacco brands (high tax paying industry) is ultimately promoting the illicit tobacco industry thus allowing criminals and opportunists to get a chance to sell their counterfeit products on cheap rates, which attracts the customers with low purchasing power.
The main factors contributing to the problem include an unbalanced fiscal policy, heavy taxation, protectionist policy measures, corruption, and weak enforcement, lack of official controls in free zones, inadequate legislation and sanctions, growth in illegal distribution networks and public tolerance of the illicit trade in tobacco products.
Recently, the Federal Board of Revenue (FBR) has initiated an advertisement campaign in the media to create awareness about the illegal and smuggled tobacco brands. It is an encouraging effort but the FBR should focus more on developing a comprehensive enforcement strategy to curb illegal tobacco trade.
The sale and purchase of smuggled Pine and other smuggled packs including Esse, Mild 88, More, Camel and Sense are illegal and attract penalties of confiscation of cigarettes, fine of up to Rs 50, 000, recovery equal to 500 per cent of unpaid taxes and imprisonment up to five years. The FBR’s agency has launched many similar campaigns against illicit cigarette brands, especially against Pine, which is in high demand amongst Pakistani smokers because it is an imported brand easily available at below the minimum price set by the FBR at Rs 34 for a pack of 20.’Cricket’ is a recent example of a duty-evading cigarette brand that is being sold at Rs 12. This also raises the question how the brand was being sold even below the minimum excise duty, which stands at Rs 17.6 per pack and should be payable to the national exchequer.
If the government is serious in curbing this illegitimate business, it needs to develop comprehensive anti-illicit trade policies and pay particular attention to the involvement of all relevant government agencies like Customs, Ministries of Finance, Health, Justice and Trade, to ensure alignment and commitment to achieving the same goals.