Philip Morris (Pakistan) Limited (PMPKL) on Wednesday announced an operating loss before tax of Rs 2,444 million for the year ended December 31, 2019.

According to an announcement of the multinational cigarette manufacturing company, the operating loss before tax was mainly due to the management decision to reorganize its operational footprint by closing its factory in Kotri, which was essential to ensure long-term sustainability of the business in Pakistan considering the unpredictable fiscal environment. Excluding the one off impairment and employee separation costs which was the result of the closure of the Kotri factory and GLT Voluntary Separation Scheme, the Company would have recorded an Operating Profit before tax of Rs 357 million for the year ended December 31st, 2019, instead of Operating loss before tax as mentioned above.

During the year, compliant tax paid tobacco industry faced challenges from the non-paid illicit sector as government continued to impose heavy excise increases with limited enforcement. The government announced an increase in Federal Excise Duty (FED) in value tier of 46% in Sept'18 followed by another increase of 32% in Jun'19 which resulted in the increase of price differential between compliant tax paying industry brands and non-tax paid brands selling below minimum legal price (current illicit incidence is 34.7% of the total tobacco market based on December, 2019 - Retail audit).

These excessive excise tax increases poses serious threats on the sustainability of the compliant tax paid tobacco industry volume base and are detrimental for the Government revenues in the long run. Therefore, an equitable tax structure with strict implementation of enforcement measures are necessary to restrict illicit sector while ensuring sustainability of the compliant tax paid tobacco industry and government revenue growth through predictable moderate excise tax increases.

Commenting on the announcement, Roman Yazbeck, Managing Director PMPKL said, "The management team is committed to improving the overall performance of the company. There are many strategic initiatives under discussion which we believe will have a positive impact on the bottom line.