Pakistan ranks No 1 across Asia: Illicit cigarette incidence stands at 34.7 percent: PMPKL

A leading multinational cigarette manufacturing company disclosed Thursday that out of around 80-85 billion cigarettes sold in Pakistan, the illicit cigarette incidence stood at 34.7 percent as Pakistan ranks as number one across Asia in terms of the quantum of illicit cigarettes sold annually.

Sadia Dada, director communications, PMPKL informed a select group of journalists Thursday through video conferencing that there is a major price differential between the tax compliant brands that legally cannot be less than Rs63, whereas there are brands available in the market for as low as Rs30 to Rs35. This is mainly attributable to the multiple excise tax increases stretching the price gap between illicit and legally compliant tax paying cigarette industry. With low disposable income, the consumers of tax paid tobacco are unable to absorb multiple tax and price increases, and shift their consumption to readily available cheap, often low-quality illicit cigarettes.

According to her, the illicit trade in tobacco products presents a threat to tobacco control because it undermines the use of tax and price policies.

Whilst in theory, higher taxes can potentially have an impact on consumption, despite the excise increases, the total consumption of cigarettes in Pakistan continues to remain constant during the past five years at 80 to 85 billion sticks per annum.

On the other hand, the volumes of the compliant tobacco industry, the largest contributors to cigarette excise revenue continue to decline.

The PMPKL alone has lost 12 billion cigarettes since 2014.

Over 98 percent of the taxes come from two players PTC and PMPKL, whereas two percent is contributed by the rest of the industry. The contribution by local players is disproportionately lower than their market share.

This point has been raised many times by the prime minister himself. the PMPKL's contribution in the revenue declined by 17 percent for Q1 2020 as compared to the same period last year as volumes continue to decline significantly. She said that determining the size of illicit sale has certainly seen its fair share of debate due to differences in methodology. Our estimates, based on the Oxford Economic study and other data shows that it is increasingly steadily and share of illicit sale is getting close to half the total market. We also assess that this causes on average loss of PKR 44bn to the national exchequer.

Traditional and conservative estimates often used by the NGOs and interests group rely on consumer feedback and packs survey and narrower definitions and do not take into account the full picture.

She explained that we often see what is probably a narrow definition of illicit by smaller studies done locally that are unable to take into account more complex factors.

For instance we see that commonly they will count packs that have either the government mandated graphic health warning or manufacturer's details missing or even those which do not have the government compliant retail price and GST printed on the pack, which help spot smuggled or counterfeit products. These metrics unfortunately do not account for the much larger and unique problem faced by Pakistan, which is of non-tax paying cigarettes that may have the legal retail price written on them (and can easily be mistaken as legitimate) but their street price is sometimes as much as half of what is printed on the pack, and can be bought for as low as Rs30 or Rs35.