Illicit cigarette market in Pakistan costs more loss with increased taxes
The illicit cigarette market in Pakistan has been known to make up for 40% of total demand.
This has put the tobacco industry under immense pressure as it is costing 45% loss when it comes to the FED. According to latest reports from the State Bank of Pakistan (SBP) the Federal Excise Duty collection is suffering from it. The food production decline was concentrate mainly on the cigarette segment. Thus, it has not only affected production in the 2016-17 Budget but also encouraged this smuggled demand. The SBP report claims that it is this large informal sector presence that legitimate ones are discouraged. They are for both domestic and foreign investment factors.
The increase in this segment has challenged the legitimate cigarette industry as the illicit exponential growth has evaded the duty segment. The higher FED in the federal budget has specifically increased the price too. Thus, ones who evade these taxes are far cheaper. The FED has been increased in two stages on 30th Nov, 2016 and 1st December 2016. In the first phase the duty was fixed at Rs 4,000 per 1000 cigarettes. Moreover, the second phase increased this to Rs 4,400 per thousand cigarettes.
In the first 2016-17 quarter FED on cigarettes declined to Rs 5.5 billion from last year’s Rs 10.1 billion collected. Tax evasion occurs in any of the 3 forms. One is on commercial imported usage (international transient brands) where tax includes duties, excise and sales tax. Thus, either duty is not paid or very less of it is paid. The second is undeclared local production or duty-non-paid (DNP) products that are produced but consumed without local taxes. They are produced but not declared to authorities, which is why there is no tax imposed at all. They are also made on an informal setup. Last form is the counterfeit ones that infringe intellectual property rights (IPR). They are identical copies of genuine brands and are not authorized. They can be both be imported or sold in local markets.