Recently, the news of imposing ‘Sin tax’ on tobacco and sugary beverages by the government has been circulating.
On the eve of completing 100 days in government, PTI government organized a public address. Prime Minister Imran Khan while addressing the gathering revealed that only two tobacco companies having market share of around 60% contribute 98% of the tobacco tax collection. On the other hand, tobacco companies operating locally having 40% market share contribute only 2% to the government treasure.
This has raised several eyebrows as this definitely the biggest pitfall of not having proper tax collection system in the country.
Let us analyze the legal and illegally operating tobacco companies in Pakistan and how they are impacting the economy of Pakistan:
Legal Tobacco Operators
The legal cigarette industry of Pakistan comprise of two multinational companies, contributing around PKR 89 billion in excise duties and taxes during fiscal year 2017-18, having 98% of the cigarette excise revenue and market share of only 67%.
Challenges Faced by Tobacco Industry
The foremost challenge faced by tobacco industry in Pakistan is the wide presence of non tax paid cigarettes. During fiscal year 2016-17, these companies reached a record high market share of 41%. The primary source of these non tax paid cigarettes is locally manufactured tax evaded cigarette which are being sold at a price gap of almost 170% as compared to the tax paid legal cigarette.
How Illegal Cigarette Companies Operates in Pakistan
There has been multiple evidence of how non tax paid companies operates and do business in Pakistan.
Giving Discounts/ Giveaways on Cigarette packs
We have surveyed some shops in interior Sindh selling cigarette of non tax paid illegal tobacco companies. These locally manufactured cigarettes are violating marketing regulations through giving discounts/ cash backs, and giveaways to consumers.
Check out this image for instance:
It clearly shows that the cigarette pack purchaser will get PKR 5 as part of silver jubilee celebration. It is strictly prohibited to give any kind of such incentives to the customers on the purchase of cigarette.
Not Placing Health Warnings on Packet
As you can witness from the images clicked from some random shops in Karachi selling illegal cigarette, none of these have health warnings placed on them. Government has strict policy of placing health warnings on cigarette packs in Urdu, but these companies fail to adhere to it.
Illegal Cigarettes being Sold at Minimum Price
Government has fixed the price of one cigarette to be between PKR 40 to PKR 60. The shopkeepers are instructed to sell cigarettes within this price range, but illegal cigarette dealers are selling it on as low as 10 PKR, which is even below the minimum tax payable on a pack. This is a violation of government policies.