Reports of anti-tobacco sector pushing towards the implementation of health tax to be collected from the tobacco industry is bound to have an adverse influence on the tax collection from the tobacco sector in Pakistan.
According to the world-renowned research institute, Oxford Economics, the tax evaded cigarette sector share stands at 37.6% currently, primarily due to a 93% excise rate increase in the past 18 months, which has created a strong motivation for consumers to switch to illegal alternative.
Due to this unprecedented increase in taxation, we have seen the tax evaded cigarette sector rise from 33 % to 37% causing the government to incur losses of more than PKR 70 billion during this period.
This undocumented sector takes immense advantage of increased taxes on the regularized tobacco sector as they have been selling a 20-cigarette pack at PKR 25-40 for the past 8 years and will continue to sell at the same price point even if health tax is levied.
The price point at where these cigarettes are being sold are below the minimum applicable taxes of Rs. 44.25 and below the minimum price of Rs 62.75 per pack set by the government; a violation that till date anti-tobacco lobby has failed to acknowledge.
According to the statement of the Ministry of Finance, 3 million jobs have been lost due to the novel coronavirus; poverty levels have increased more than 33% over the past year. Inflation levels which have reached double figures have stretched consumer spending power, far-reaching impacts that may also lead the consumers to shift to tax-evading cigarette brands.