Illicit cigarettes make up half of Pakistan’s market, survey reveals

Illicit cigarettes make up half of Pakistan’s market, survey reveals

By Staff Reporter

ISLAMABAD: Nearly half of Pakistan’s cigarette market is dominated by illicit brands that evade taxes and sell below the minimum legal price, a survey by market research firm IPSOS showed on Friday.

The survey, conducted in 10 districts across the country, found that 48 percent of the market share was held by locally manufactured tax-evaded brands and smuggled brands, while 52 percent was held by legal duty-paid brands.

The IPSOS report said the illicit market share had increased by 33 percent since February 2023, when the government hiked excise rates by up to 154 percent to meet IMF revenue targets.

The report also found that more than 83 percent of the cigarette brands sampled did not have the mandatory Track and Trace stamp, and over two-thirds were sold below the minimum legal price of PKR 127.4 ($0.75).

The price gap between legal and illicit cigarettes was huge, with duty-paid brands costing at least PKR 150 ($0.89) per pack, while tax-evaded and smuggled brands costing as low as Rs30 and Rs60 respectively.

The report said law enforcement had failed to curb the production, smuggling, and sale of illegal cigarettes, which cost the national exchequer Rs.240 billion ($1.42 billion) in lost tax revenues annually.

Similarly, locally manufactured tax-evaded cigarette brands and smuggled brands fail to comply with Pakistan’s stipulated requirements, which include the printing of Graphic Health Warnings, underage warnings, mentioning retail prices, and manufacturer’s names.

Furthermore, these brands do not adhere to the brand licensing regime of the Federal Board of Revenue (FBR) and violate the Federal Excise Act and the Sales Tax Act.

Currently, legal cigarette brands hold a market share of 52 percent, with PTC accounting for 40 percent and PMI holding 12 percent of the share. Locally manufactured tax-evaded brands constitute 38 percent of the illegal market share, while smuggled cigarette brands make up 10 percent of the illegal market.

According to a report, over two-thirds of cigarette brands are being sold below the government’s Minimum Legal Price (MLP), highlighting the authorities’ failure to effectively enforce tax laws. Two-thirds of the cigarette brands were found to be selling below the minimum legal price.

Based on the market share figures from January 2023’s retail audit and predictions for June 2023 from various verified sources, the report reveals that the excise increase has resulted in a decrease of more than 10 percent in the market share of the legitimate industry. The volume has entirely shifted to the illicit sector due to consumers downtrading to less expensive illicit brands.

The report further states that the Federal Excise hike has caused a 33 percent increase in the illicit market share and smuggling of cigarettes due to subsequent downtrading by consumers. Consequently, the illicit market share has risen from 36 percent in 2022 to 48 percent in 2023.

Multiple resources indicate that the total tobacco sector in Pakistan sells 83 billion sticks annually. This implies that approximately 48 percent or 2 billion cigarette packs are evading the tax net. This tax evasion results in an annual loss of Rs. 240 billion to the national exchequer. The further shift of consumers to illicit brands will hinder the authorities’ ability to achieve their tax collection goals.

Copyright © 2021 Independent Pakistan | All rights reserved

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Illicit cigarettes make up half of Pakistan’s market, survey reveals

By Staff Reporter

ISLAMABAD: Nearly half of Pakistan’s cigarette market is dominated by illicit brands that evade taxes and sell below the minimum legal price, a survey by market research firm IPSOS showed on Friday.

The survey, conducted in 10 districts across the country, found that 48 percent of the market share was held by locally manufactured tax-evaded brands and smuggled brands, while 52 percent was held by legal duty-paid brands.

The IPSOS report said the illicit market share had increased by 33 percent since February 2023, when the government hiked excise rates by up to 154 percent to meet IMF revenue targets.

The report also found that more than 83 percent of the cigarette brands sampled did not have the mandatory Track and Trace stamp, and over two-thirds were sold below the minimum legal price of PKR 127.4 ($0.75).

The price gap between legal and illicit cigarettes was huge, with duty-paid brands costing at least PKR 150 ($0.89) per pack, while tax-evaded and smuggled brands costing as low as Rs30 and Rs60 respectively.

The report said law enforcement had failed to curb the production, smuggling, and sale of illegal cigarettes, which cost the national exchequer Rs.240 billion ($1.42 billion) in lost tax revenues annually.

Similarly, locally manufactured tax-evaded cigarette brands and smuggled brands fail to comply with Pakistan’s stipulated requirements, which include the printing of Graphic Health Warnings, underage warnings, mentioning retail prices, and manufacturer’s names.

Furthermore, these brands do not adhere to the brand licensing regime of the Federal Board of Revenue (FBR) and violate the Federal Excise Act and the Sales Tax Act.

Currently, legal cigarette brands hold a market share of 52 percent, with PTC accounting for 40 percent and PMI holding 12 percent of the share. Locally manufactured tax-evaded brands constitute 38 percent of the illegal market share, while smuggled cigarette brands make up 10 percent of the illegal market.

According to a report, over two-thirds of cigarette brands are being sold below the government’s Minimum Legal Price (MLP), highlighting the authorities’ failure to effectively enforce tax laws. Two-thirds of the cigarette brands were found to be selling below the minimum legal price.

Based on the market share figures from January 2023’s retail audit and predictions for June 2023 from various verified sources, the report reveals that the excise increase has resulted in a decrease of more than 10 percent in the market share of the legitimate industry. The volume has entirely shifted to the illicit sector due to consumers downtrading to less expensive illicit brands.

The report further states that the Federal Excise hike has caused a 33 percent increase in the illicit market share and smuggling of cigarettes due to subsequent downtrading by consumers. Consequently, the illicit market share has risen from 36 percent in 2022 to 48 percent in 2023.

Multiple resources indicate that the total tobacco sector in Pakistan sells 83 billion sticks annually. This implies that approximately 48 percent or 2 billion cigarette packs are evading the tax net. This tax evasion results in an annual loss of Rs. 240 billion to the national exchequer. The further shift of consumers to illicit brands will hinder the authorities’ ability to achieve their tax collection goals.

Copyright © 2021 Independent Pakistan | All rights reserved