If the Pakistani government insists on increasing taxes on tobacco products, it may lose the second-highest taxpayer in all categories of taxes as well as further investments by BAT and PTC. Photo credit: BAT.
British American Tobacco (BAT) warned that it may cease investments in Pakistan if the government raises taxes on cigarettes in the upcoming budget.
According to media reports, BAT revealed that existing tax policies have already caused a 38% decline in sales and boosted the illicit cigarette market to 58%.
Michael Dijanosic, BAT’s regional director for Asia Pacific, Middle East, and Africa, expressed concerns over the shrinking regulated tobacco sector and the expanding illicit market, attributing these issues to current fiscal policies.
Last year’s substantial tax hike on tobacco products prompted consumers to switch from tax-paid brands to cheaper, illicit alternatives. Dijanosic warned that further tax increases could compel the company to withdraw from Pakistan.
He pointed out that despite a 73% increase in federal excise duty, sales have plummeted by 38%, and government revenues have only grown by 8% in real terms due to the decrease in sales.
Dijanosic expressed these concerns during meetings with prime minister Shehbaz Sharif and Special Investment Facilitation Council (SIFC) national coordinator Lt. General Sarfraz Hussain.
BAT, along with its local affiliate, Pakistan Tobacco Company (PTC), is expected to contribute PKR220 billion (US$791 million) in taxes this fiscal year, out of the PKR265 billion (US$953 million) anticipated from the entire tobacco sector. Over the past five years, the formal tobacco sector has paid nearly PKR700 billion (US$2.52 billion) in taxes.
Estimates shared with the government indicate a 25% increase in the federal excise duty rate would reduce revenues from the tobacco sector by 15% in the next fiscal year. Projections show that if further tax increases are implemented, collections would drop from PKR265 billion (US$953 million) this fiscal year to PKR225 billion (US$809 million) next fiscal year.