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Philip Morris MD lists factors behind FDI decline

Informal economic activities, lack of level playing field and unpredictable fiscal and regulatory environment discouraging foreign direct investment in Pakistan.

09 May 2020

Informal economic activities, lack of level playing field and unpredictable fiscal and regulatory environment discouraging foreign direct investment in Pakistan.
One of the world's leading multinational companies - Philip Morris ability to invest is also inhibited due to the country's current business environment where the legal tobacco industry is facing a critical challenge with the wide presence of non-tax paid cigarettes.
Talking to mediapersons, Roman Yazbeck Managing Director Philip Morris Pakistan Limited (PMPKL) said that a level playing field and a conducive regulatory environment is critical for the sustainability of existing and future compliance of businesses anywhere in the world. "Illicit trade impacts numerous industries and is one of the key issues that drive away foreign investors from fresh investment," he added.
Roman Yazbeck was appointed MD Philip Morris Pakistan in February this year and it was his first interaction with media.
He said over the past decade, Philip Morris has invested over $800 million in Pakistan, however, the challenges of the illicit tobacco is not only hurting the legal business of tobacco but also putting negative impact on the government revenues and the economy as a whole. The presence of illicit trade has restricted PMPKL to invest more in Pakistan, he said.
"In current situation of the market, investment in business development or infrastructure is not possible but we continue to invest in our people here in Pakistan," MD PMPKL said.
Approximately 80-85 billion cigarettes are sold in Pakistan each year, out of which illicit prevalence is recorded at 34.7 percent. The presence of the illicit industry has forced to realign our business structure as per reality of the market, which was different when we first invested in this market 10 years ago, he said. "We are still optimistic for Pakistan. We recognize the potential and only advocate for a level playing field to invest more in Pakistan," he added.
Appreciating the steps being taken by the government, he said there is lot more that can be done to curb illicit trade in tobacco in Pakistan. As per a survey, this alone has the potential to add Rs 44 billion to the government revenue in excise and taxes, he maintained.
Despite being the largest contributors to excise revenue, the volumes of the compliant tobacco industry continue to decline. "We have much more capacity than what we are currently producing but the presence of illicit trade has made it difficult for us to produce more. Even we were compelled to shut down our Kotri factory to reduce losses," he added.
Roman said most of the countries in the world are facing the issue of illicit cigarette trade in the form of smuggled cigarettes whereas in Pakistan, not only is there an issue of smuggled cigarettes but also locally manufactured, counterfeit or under-priced cigarettes, that are directly hurting the legal tobacco industry and the kitty.
As per laws, a pack of cigarette containing 20 sticks cannot be less than Rs 63, whereas there are a number of brands available in the market for as low as Rs 25-30 per 20-stick pack.
"If the government works more effectively on enforcing the laws to curb illicit cigarette market and the volume of the market comes back from the illicit market then we can immensely increase our production that will massively benefit not only the industry but the government in the shape of revenue."
He said PMPKL's contribution in the revenue also declined by 17 percent during first quarter of this year (CY20) as compared to the same period last year. PMPKL has made a meaningful contribution to the exchequer in the form of excise tax, sales tax and other government levies to the tune of Rs 5.952 billion during first quarter of this year compared to Rs 6.927 billion in the same period last year.
He said the industry is already paying massive taxes and it is impossible for it to bear any further taxes in current scenario, when illicit and untaxed cigarette industry is penetrating the market. Talking about the track and trace system, he said that this is very useful experience in other countries that can help curb the illegal tobacco trade in the country.

Copyright Business Recorder, 2020