As per the plans of the federal government, a sin tax is to be imposed on the tobacco industries before the next budget announcement, and if the government gets successful in implementing the tax, the problems for the multinational cigarette companies working in the country would increase.
The prime minister—Imran Khan during his public address on the completion of 100 days of government said that just 2 tobacco firms, with a market share of nearly 60 per cent, contributes 98 per cent to the complete tobacco tax collection, whereas all the other tobacco firms, which are performing allthe operations locally, contribute only 2 per cent to the national exchequer inspite of having a market share of nearly 40 per cent.
According to the industry sources, the locally registered firms were paying just 2 per cent in taxes in spite of having 33 per cent of the market share, as they were selling their product to nearly 50 per cent below the retail price printed on the cigarette packet.
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The sources further said that cigarettes are already subjected to sin tax in the form of excise duties, and any more taxation would result in duplication that would result in a continual increase in the tax on cigarettes. If the tax is only applied to sin products then the production cost would decrease, the government’s profits would also decrease, while the unlawful trade of cigarettes in the country would also increase. It is advised that the funding for the universal health care comes as a result from the overall government budget, as tobacco tax has already contributed majorly to the state revenue.
As per sources the increased levels of illegal cigarette trade would weaken the government’s efforts towards increasing the profit collection and to decrease the cigarette consumption for meeting the health objectives.
The tobacco industry in Pakistani is facing a difficult challenge with an extensive presence of non-tax cigarettes, which attained a recorded market share of more than 41 per cent during the financial year 2016-17. The basic source of these non-tax paid cigarettes is the locally made tax-exempted cigarettes, being sold at a price gap of nearly 170 per cent incomparison to the tax-paid on legal cigarettes.
The local manufacturers besides evading taxes were also found openly breaking the market regulations via ads, discounts, giveaways, cashbacks to the consumers.
With low disposable income, the users who consume locally manufactured cigarettes would be forced to switch their consumption to illegal cigarettes as they would be unable to absorb the multiple taxes, hence this would make the task of law enforcement agencies against these illegal operators highly tough.