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Pakistan Tobacco Company says illegal cigarette trade cost Rs 20 billion revenue loss

Pakistan Tobacco Company says illegal cigarette trade cost Rs 20 billion revenue loss

KARACHI: One out of every 5 cigarettes sold in Pakistan has either been manufactured in Pakistan without paying appropriate taxes or smuggled into Pakistan, the biggest cigarette producer of the country and the largest contributor to government revenues Pakistan Tobacco Company (PTC) Limited said in its latest annual report for the year ended December 31, 2013.

PTC which produced Rs 42.872 billion sticks of cigarettes in 2013 and contributed over Rs 62 billion taxes under the heads of customs duty, excise duty, sales tax and excise duty to the national exchequer in 2013 said that the Illicit cigarette trade is promoting illegal activities such as, domestic tax evasion, counterfeiting and cross border smuggling on the one hand and was creating complex problems for the government, legitimate industry players, and society at large on the other.

The annual report prominently displays Euromonitor’s statement that the increasing trend of illicit cigarette trade was costing the government Rs 20 billion loss a year and if unchecked the menace would cost the Pakistani exchequer a huge loss of Rs 100 billion in the next few years.

PTC which contributed Rs 51 billion in revenues to the national exchequer in excise duty, sales tax, income tax and custom duties) in 2012, says that mega contribution to the national economy is threatened by excise-driven price increases accelerate consumers’ downtrading to the ultra-low price segment in the tax-evaded sector. Sustainability of the government revenue growth remains a key area of concern given the recent surge in illicit sector volumes and stretched consumer affordability.

Expressing concerns about the marginal decline in legitimate cigarette market, the PTC says that in 2013 the industry faced issues like persistent down trading to cheap illicit cigarettes due to rising illicit trade, intense competition and increased regulations.

The legitimate cigarette market, which contributed by far the largest amount of federal excise duty in 2012-13 than any other industry in the country, marginally declined during 2013 as compared to 2012. In 2013, the industry faced issues like persistent down trading to cheap illicit cigarettes owing to rising illicit trade, intense competition and increased regulations. However, despite the adverse operating landscape, our brands and people have shown resilience. The company has registered net turnover growth during 2013 as compared to 2012, attributed to above inflation price increase and sales volume growth. The price increase was taken to cover inflationary pressures on our cost base and excise rate increase.

The frequent seizures of illegal cigarette cache shows the government’s seriousness to bring the illicit cigarette trade under control and yet it remains the tip of the proverbial iceberg to undermine the legitimate cigarette market which one the one hand is creating an unfair playing field for legitimate industry to contribute more revenue to the national exchequer.