Tax evasion through illicit cigarettes trading results in an annual loss of Rs240 billion for Pakistan. Ipsos, the world’s third-largest market research firm present in 90 markets, recently conducted an evaluation of illicit cigarette brands in Pakistan.
A survey was conducted across 10 districts, including Karachi, Lahore, Rawalpindi, Multan, Faisalabad, Gujranwala, Hyderabad, Peshawar, Bahawalpur, and Sukkur. The survey, involving 1,000 shops, aimed to assess the availability and prices of locally manufactured tax-evaded brands and smuggled brands.
This research was conducted following a significant increase in federal excise duty in the Finance Supplementary Act, which was approved in February 2023. The Act raised tier-I excise rates by 154% and tier-II rates by 146%.
The drastic increase in excise rates aimed to generate additional revenue to meet the conditions set by the IMF. However, locally manufactured tax-evaded cigarette brands and smuggled brands fail to meet the government’s requirements. These requirements include the printing of a graphic health warning, underage warning, retail price, and manufacturer’s name.
Moreover, these brands do not comply with the brand licensing regime of the FBR, nor do they possess the mandated track and trace stamp. Additionally, they violate the Federal Excise Act and the Sales Tax Act.
According to Ipsos’ research, legal cigarette brands hold an overall market share of 52%. Pakistan Tobacco Company accounts for 40% of this share, while Philip Morris International holds a 12% share.
Surprisingly, illicit cigarette brands occupy a staggering 48% market share. Within this, locally manufactured tax-evaded brands constitute 38% of the illegal market share, while smuggled cigarettes make up 10%.
The study also evaluated the implementation of the track and trace system for different cigarette brands. Shockingly, more than 83% of the sampled brands were sold without the government-mandated track and trace stamp.
The report highlights that over two-thirds of cigarette brands are sold below the government’s minimum legal price, indicating a failure of authorities to effectively enforce tax laws.
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