The Board of Directors of Pakistan Tobacco Company Limited (PTC), one of the first multi-nationals to operate in Pakistan since 1947, released results for the first half of 2019.
The Board was very pleased to announce that PTC has for the first time crossed the landmark achievement of contributing PKR 103.5 billion towards Government revenues through payment of federal excise duty, sales tax and income tax (FY 2018-19). This translates to a 32% growth versus same period last year (FY 2017-18) whereby PKR 78.4 billion was contributed. The Board declared an interim dividend of PKR 13.0/share
The Board also appreciated the company’s efforts on embarking upon its “Made in Pakistan” exports initiative and that this project would bring in an estimated USD 50 million in the next 18 to 24 months. The Board further commented that all this has been possible due to the exceptional management practices adopted by PTC and the internationally benchmarked standards embedded across the company and its leaf, manufacturing and supply chain operations. Not only is PTC considered to be one of the highest government revenue contributors in the country, it is also one of the few organizations that have very extensive CSR programmes. Through its flagship Afforestation programme running since 1981, PTC has planted and distributed more than 78 million saplings, all free of cost. This, along with several other initiatives that are aimed at rural and economic uplift, improving and embedding sustainable agricultural practices etc. reflect PTC’s unwavering commitment to its people and to the nation.
However, the Board of Directors expressed their concern that with the fiscal measures approved in the Federal Budget 2019/20, illicit cigarette trade is again fast increasing in the country and is already more than 30% of the market.
This is due to the massive increases in excise rates by 106.3% and resultant widening price differentials between legitimate tax paid brands and tax evaded brands which has gone up to PKR 50. Local illicit manufacturers are also violating Ministry of Health tobacco promotion advertising and sponsorship regulations in addition to this fiscal non-compliance.
Other than this local tax evasion, there are also many smuggled cigarette brands that do not pay the requisite duties and do not have 60% pictorial health warning mandated by the Ministry of Health. Availability of such smuggled cigarettes negatively affected farmers and business partners across the legitimate supply chain and hurts Government revenues.
The Board also noted their concerns that the adjustable advance excise duty of PKR. 300/kg levied on the tobacco processed for manufacture of cigarettes introduced in the Interim Supplementary Finance Bill in October 2018 has been reduced to PKR 10/kg. This was an effective measure towards strengthening documentation of illicit leaf purchases and increased their cost of business that has now unfortunately been abolished.
If this unfair playing field continues to grow at the back of inadequate enforcement and lack of focus by the relevant agencies, would have many unintended consequences. Tobacco revenue losses to Government due to illicit currently stands at PKR 50 billion and this will continue to grow if there is no effective enforcement against illicit trade in tobacco products. The Board has therefore highlighted the need for Government to carry out strict enforcement against tax evasion in the tobacco industry to reduce illicit cigarette trade in the country.