ISLAMABAD: The current excise duty structure on tobacco products has pushed consumers to down-trade from legally compliant cigarette brands to illegal, tax-evaded brands that are easily available across Pakistan. As a result, the national exchequer is expected to face a revenue loss of around Rs 310 billion annually, with illicit cigarette brands comprising more than 60% of the total market.
This was highlighted in a report titled, “Illicit Cigarette Trade in Pakistan – Current Situation and Way Forward,” produced by the National University of Sciences & Technology (NUST). The report was formally launched in a ceremony held at a local hotel.
Federal Minister for Defence, Khawaja Muhammad Asif, and the Pro-Rector of Research, Innovation, and Commercialization, NUST, Dr. Rizwan Riaz, graced the event. They were briefed on the complex challenges in administration, revenue collection, policy coordination, and market dynamics of the cigarette industry, which are causing significant tax revenue losses for the national exchequer. Additionally, the inadequate enforcement of existing laws, rules, regulations, and policies has further bolstered the illicit sector.
While quoting the efficacy of the Track and Trace System (TTS) under the government’s enforcement regime, the report mentioned that the TTS had been aimed at reducing the levels of illicit trade in the country. Contrary to that goal, the illicit trade has increased since its implementation. This increase in illicit cigarette trade is feared to cause the market share of the illicit sector to exceed 60% of the total market in 2024, leaving a dwindling legitimate sector share.
To counter the challenges faced by the legitimate tobacco industry, the report urged the government to develop a well-thought-out strategy, including excise duty structure reforms, modified price thresholds, increased enforcement of the law against the sales of non-compliant brands, and extensive and consistent implementation of TTS. “Increased law enforcement, especially in areas like AJK, could help reduce the infiltration of local tax-evaded brands into Pakistan, which is the main component of the illicit cigarette trade with a share of 90%,” the report suggested.
During his speech, Kh Asif said, “The Track and Trace system can only work when it is coupled with proper retail level enforcement. It was done by the previous Government as a tick-the-box exercise. We are revisiting this system and will ensure that the right system is installed.”
He further stated, “Our enforcement measures in AJK are bearing fruit, with more than 4 billion cigarette sticks’ worth of raw material being seized. Furthermore, the closure of counterfeiting factories in Islamabad, Multan, and Jamshoro showcases the resolve of the Government against illicit trade. We are aware of this issue and are tightening the noose on this annual PKR 300 billion loss.”
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