Rise in FED gives informal cigarette industry a huge boost

ISLAMABAD: The illicit cigarette industry captured the overall market of documented cigarette manufacturers in April 2023 after a major increase in federal excise duty (FED) from February 14, 2023.

Sharing the negative impact of the mini-budget, the officials of the Pakistan Tobacco Company Limited (PTC) portrayed a horrifying picture of the formal industry during a briefing to the media on Wednesday.

The PTC officials hinted at very tough decisions in case such a trend continues in the coming days.

During the media session, representatives from the PTC highlighted that the sales volumes for March 2023 have completely flipped where legitimate industry sales stand at 1.84 billion sticks in March 2023 against 4.84 billion sticks in January 2023 (pre-mini budget).

Similarly, the illicit volume has expanded exponentially from 2.85 billion sticks in Jan ’23 to 4.8 billion sticks in March 2023. This demonstrates a shift of three billion sticks from the formal sector to the illicit sector which has deprived the government of invaluable revenue at this trying juncture.

A sharp increase has been witnessed in the availability of smuggled cigarettes across the country at cheap rates, forcing the price-conscious consumer to cheaper smuggled illicit cigarettes. A 30 per cent increase in sales of smuggled cigarettes was recorded during March.

More than 100 brands have flooded the market which has no graphical health warning and do not conform to the laws of Pakistan. Furthermore, they sell with impunity, flouting all regulations set by the Government of Pakistan without fear of being caught.

Qasim Tariq, senior business manager PTC informed that after the mini-budget, there is a disproportionate increase in revenue at a huge price.

In the fiscal year (2022-23), the FED on cigarettes has increased by more than 200 percent. On the other hand, the retail price threshold should also be increased in line with Excise increases.

He said that following the excise increase in February 2023, the month of March marked the first complete month of sales under the new regime and the results are dismal. The industry has witnessed a sharp increase in the incidence of illicit cigarettes generally and smuggled cigarettes specifically.

During a media briefing session by representatives of PTC, they shared the results of recent excise increases for the cigarette industry.

Before the mini-budget in February 2023, the excise on a pack of Tier-1 cigarettes was Rs130, whereas, it was increased to Rs330 in the mini-budget amounting to an increase of 154 percent.

Copyright Business Recorder, 2023