Pakistan has seen a rise in the sales of illicit cigarettes as a result of a significant increase in federal excise duty (FED), according to Muhammad Zeeshan, chief financial officer at Philip Morris Pakistan.
Zeeshan stated that the growing tax disparity between legal and illicit cigarette sales is a result of the government’s increased tariffs on cigarettes during a discussion with journalists in Karachi.
The managing director of Philip Morris stated that “the sale of illegal cigarettes also increases whenever the tax on legal cigarettes increases.”
In terms of illegal cigarette sales, Pakistan has overtaken Malaysia as the second-largest nation in Asia. As the whole tax burden was carried by the structured and legitimate tobacco sector, Zeeshan claimed that raising FED would never be successful without suppressing the illicit cigarette trade.
He encouraged the government to adopt track and trace across all businesses, enforce regulations equitably to the whole industry, and create an atmosphere in which an organized, tax-paying industry can prosper.
Zeeshan added that the legal cigarette market has already begun to feel the effects of this huge rise in excise duty and that the government will also suffer as a result of this action due to a decline in cigarette tax collection.
According to data from the first quarter, sales of legal cigarettes have decreased by 50%, but illegal cigarettes continue to profit from increases in excise taxes, just as in the past. The price differential between cigarettes sold legally and illegally has doubled as a result of the most recent excise duty rise.
It is predicted that the government won’t be able to collect Rs260 billion in taxes from the tobacco business due to the sharp rise in illegal sales. The government can readily determine the poor collection of Rs170 billion due to the decline in legal cigarette sales by examining the taxes that were collected in March.
Also read: Cigarettes: A cause of concern
