Increased taxes on taxpaying tobacco industry to further diminish economy

Illegal trade is a menace for the economy that deprives the government of big revenues, while restricting the growth of numerous law-abiding industries that are making healthy contributions to the national exchequer, by regularly paying their taxes and dues.

In Pakistan, the tobacco industry has continuously suffered due to the illicit manufacturing and trading of cigarettes. The government has been losing revenues of over 45 billion Rupees annually and stands to lose further based on expected 2020 volume trends. Hence, the FBR continues to fight against unlawful production, smuggling and sales of cigarettes.

Over the years, previous government regimes have been taking various measures to curb this menace, but unfortunately, the mal-practices in Pakistan’s tobacco industry have continued. However, since the PTI-led government has come into power, it is showing zero tolerance for tax evasion, especially in the tobacco sector.

The FBR has also shown a stronger resolve against illicit trade by taking fiscal measures and deploying technology-based solutions, such as the track and trace system that promises more effective control and regulatory compliance in various industries, including tobacco. Along with this the FBR have also been conducting raids and seizing smuggled and counterfeit goods on a regular basis.

If the government wants to improve the tax revenue from the tobacco industry, the Ministry of National Health Services, Regulations and Coordination with the help of the FBR will have to take appropriate measures to check daily consumption of approximately 64 million illicit cigarettes in Pakistan, reflecting serious violations of health laws/rules and regulations by the ‘illicit’ industry.

As per local laws, the minimum price of a cigarette pack is PKR 62.76/pack whereas there are illicit brands available in the range of PKR 20-50. There are key 7 illicit manufacturers that contribute to over 80% of the illicit sales within the country. Furthermore these illicit manufacturers violate other health laws such as advertising, targeting youth, monetary incentives and lucky draws etc. all of which are prohibited under the law of Pakistan.

Therefore, action by the law enforcement teams against these illicit manufacturers will help to curb the black market. However, if additional heavy taxes are levied on the legitimate tobacco sector, the illicit sector will keep increasing in market share as the price difference between the pack of tax-paid cigarette will be even higher compared to a pack of non-tax paid brand.

In the past year, the government has made several commendable efforts in this regard and hopefully, it will continue to revive and retrieve the lost government revenues, while also protecting public-health and meeting the regulatory objectives of the country.