What does 77+billion mean to us?
Tax is a powerful tool; if done right in the tobacco sector, it will enable the government to spend on people. This 77+ billion annual loss to the government can translate into over 500 hospitals or 22 universities or 36,252 units of apartments for low-income workers every year and the possibilities are aplenty.
Anatomy of 200+ billion Tobacco Tax Potential
The total market size of the tobacco industry is more than 80 billion sticks per year. The legitimate market share of companies is 60 percent whereas a whopping 40 percent is the illicit sector. The irony is that only two companies account for 97 percent of the tax paid to the government. The total tax from tobacco sector is Rs.117 billion (FY 2019/20). This amount includes two multinational companies Pakistan Tobacco Company Limited (PTC) and Philip Morris Pakistan Limited (PMPKL) with Rs113.9 billion which accounts for almost the whole tax from this sector. The other 30 companies, with close to 40% of the market and over 200 brands pay only Rs3.14 billion. This leaves a wide hole amounting to more than Rs.77+ billion due to illicit sector. The illicit cigarette sector comprises of three types (a) local tax evaded brands (b) smuggled brands and (c) counterfeit brands. The commonality between the three types is that there is rampant tax evasion in all. Local tax
The total market size of the tobacco industry is more than 80 billion sticks per year. The legitimate market share of companies is 60 percent whereas a whopping 40 percent is the illicit sector. The irony is that only two companies account for 97 percent of the tax paid to the government. The total tax from tobacco sector is Rs.117 billion (FY 2019/20). This amount includes two multinational companies Pakistan Tobacco Company Limited (PTC) and Philip Morris Pakistan Limited (PMPKL) with Rs113.9 billion which accounts for almost the whole tax from this sector. The other 30 companies, with close to 40% of the market and over 200 brands pay only Rs3.14 billion. This leaves a wide hole amounting to more than Rs.77+ billion due to illicit sector. The illicit cigarette sector comprises of three types (a) local tax evaded brands (b) smuggled brands and (c) counterfeit brands. The commonality between the three types is that there is rampant tax evasion in all. Local tax evaded brands arethe main component of illicit cigarette trade and is 90% of the illicit market. In addition to tax evasion by selling below the minimum tax and minimum price set by the Government, local illicit manufacturers also widely advertise cigarette brands inside and outside shops and additionally give consumers cash prizes, discounts etc. Interestingly these local illicit brands comply with the visible packaging requirements, thereby making it difficult to enforce against these local illicit brands. The second type of illicit cigarette trade that is smuggled cigarettes, in addition to tax evasion by way of being smuggled into the country, also evade the laws of Ministry of National Health Services Regulations and Coordination and the Federal Board of Revenue in terms of cigarette packaging laws i.e. absence of mandated health warning, printing of local warning, retail price etc. The third type is counterfeit cigarettes, in addition to tax evasion; also violate trademark and intellectual property rights laws.
evaded brands are the main component of illicit cigarette trade and is 90% of the illicit market. In addition to tax evasion by selling below the minimum tax and minimum price set by the government, local illicit manufacturers also widely advertise cigarette brands inside and outside shops and additionally give consumers cash prizes, discounts etc. Interestingly these local illicit brands comply with the visible packaging requirements, thereby making it difficult to enforce against these local illicit brands. The second type of illicit cigarette trade that is smuggled cigarettes, in addition to tax evasion by way of being smuggled into the country, also evade the laws of Ministry of National Health Services Regulations and Coordination and the Federal Board of Revenue in terms of cigarette packaging laws i.e. absence of mandated health warning, printing of local warning, retail price etc. The third type is counterfeit cigarettes, in addition to tax evasion; also violate trademark and intellectual property rights laws.
