Heavy taxation can force consumers to shift towards Illicit cigarettes

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LAHORE – Despite the proliferation of illegal cigarettes in the country the extraordinary increase in FED has raised new questions about the government’s revenue targets to raise Rs 170 billion in additional revenue.

 The federal government is relying heavily on cigarette sector to generate new revenue of Rs 170 billion to cover the budget deficit. According to the tobacco industry, cigarette is the sector in Pakistan where the rate of tax evasion is already very high and now the extraordinary increase in federal excise duty will further increase this trend.A delegation of journalists from Karachi visited Hyderabad, Jamshoro, and Kotri to assess the market impact of the recent increase in FED.The participants of the tour examined the pricing, packaging, and incentives of the brands sold at the larger outlets along with smaller cabins.

In this study visit, various brands were being sold at half the price of the legal tax-paying cigarette brands while posters of various reward schemes and incentives were also displayed to increase sales.Surprisingly, at a cigarette shop located in the Latifabad area in Hyderabad, cigarettes of smuggled brands were found to be sold at a lower price of Rs 50-100 per pack than locally produced illegal cigarettes.A local illegal cigarette brand openly violated the government price rules while raising the price by Rs 30. On the other hand, also increased the number of cigarette sticks in the pack, and now a pack of 25 sticks is currently being sold at Rs 150 with new packaging.

Other cheap and illicit brands were also found to be sold without health warnings in fancy and persuasive packaging, which is in violation of the country’s tobacco control laws.

The local people said that inflation has increased the problems of people addicted to smoking, and now it is not easy for them to buy cigarettes from legal cigarette brands.“Because legal cigarettes are expensive, most of the addicts are now shifting to cheap illegal cigarettes,” a local consumer said.The government had set a target of collecting taxes of 200 billion rupees from the cigarette industry in the fiscal year 2022-23, while the unusual increase in the FED will not only dent the government collection targets but also have a detrimental effect on the legal cigarette industry to force them to shut down their business.

Also, there is a fear of a 50% reduction in the sale of legal cigarettes. The sudden increase will also raise the price of legal cigarettes by 100 percent.This will only benefit illegal cigarette brands which are also increasing their prices, margins, and market penetration.

The legal tobacco industry has urged the government that the recent hike in FED will cause legal cigarette sales in Pakistan to lose market share, going from 60% to less than 50%, and cheap illegal cigarettes will fill the void, discouraging investment in the legal industry.

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