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Illicit cigarette trade attains new peak: tobacco company contributes Rs 45 billion to national exchequer




  • While the local black market in cigarettes has successfully siphoned off a hefty Rs 80 billion in tax revenues from Government of Pakistan, over the course of 2007-2011, according to ”Euromonitor International”, in sharp contrast, during 2011 alone, Pakistan Tobacco Company Limited (PTC) contributed Rs 45 billion to the national exchequer, and around Rs 79 million directly to KP government in lieu of Tobacco Development Cess. 

    Euromonitor International has extensive network of strategic analysis in 80 countries providing the depth of global, national and local business information required in today”s increasingly international business environment. PTC, the largest cigarette manufacturing company in Pakistan is part of British American Tobacco (BAT) Group, which has a presence in 180 countries. 

    In 2011, illicit cigarette trade reached a peak of 23.5 billion sticks. These local duty-not-paid (DNP) smuggled and counterfeit cigarettes represented 26.7 percent of Pakistan”s total cigarette consumption in terms of volume. Last year, Pakistan ranked third highest in illicit trade in Asia Pacific countries, behind Malaysia and Hong Kong. 

    According to Euromonitor International, Pakistan”s huge illicit cigarette trade is fuelled by two key components comprising high tax incidence coupled with week enforcement of anti-illicit trade laws. Taxes make up 68.5 percent – 81 percent of the retail price of a cigarette packet, which is considerably high given low purchasing power of average Pakistani consumer. This in turn inflates price differential between legal and illicit cigarettes, creating a natural shift away from legitimate trade as smokers can easily purchase duty-evaded and cheap cigarettes at a fraction of the duty-paid price. 

    While laws and regulations aimed at controlling, if not eliminating, illicit cigarette trade are in place, it would seem that these are, at best, loosely enforced. Especially crippling is the lacking sense of criminality associated with illicit trade. This is highlighted by the fact that 84.5 percent of all illicit cigarettes comprise local DNP, implying that the entire supply chain of this segment is cultivated on home ground. 

    Euromonitor International has recommended that government needs to deploy a holistic approach to tackle this burgeoning illicit trade. This multi-pronged approach needs to consist of: Enhanced regulatory and fiscal measures, strict enforcement of existing legislation, and heightened awareness among stakeholders. 

    PTC has one manufacturing unit and one Green Leaf Threshing plant in KP province and its fixed investment in KP in terms of plant, machinery, buildings, vehicles etc is rupees five billion. Its Corporate Social Responsibility (CSR) agenda aims at ensuring that it operates ethically, responsibly and gives back to the communities that it works in. In 2010, PTC invested over Rs 109 million on CSR projects in KP province. 

    According to PTC: 68.5 percent to 81 percent is the rage of tax levied on each pack of cigarettes; one out of five cigarettes sold in Pakistan is either local duty non-paid, smuggled, or counterfeit; 14 billion is the number of duty-not-paid cigarettes sold by the non-complaint sector in Pakistan in 2011, and Rs 10 billion is loss caused to national exchequer due to sale of illicit cigarettes in Pakistan in 2011. 

    Copyright Business Recorder, 2013

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