PESHAWAR - A market survey has revealed that the local cigarette manufacturing companies in Khyber Pakhtunkhwa and AJK are openly violating the tax laws of government of Pakistan.

Several local brands are growing at a fast pace in different parts of Pakistan. These brands are sold at a retail price lower than the legal minimum price of Rs.42/- per pack fixed by the government for a pack of 20 cigarettes. According to the market survey, these local companies are making money by taking the advantage of weak law enforcement policies in these regions.

They are running their illicit business tactfully as they print prices on cigarette packs and in newspaper advertisement, which are fulfilling legal requirements but in fact the market prices tell another story.

 Euro-monitor International, a leading business intelligence company, in 2012 report also revealed that these local brands evading taxes by selling below the legal minimum price.

 A local manufacturers recently advertised prices for their brands, “Gold Street International” and “Olympic” to be Rs.46, and “Hero” and “Kisan” to be Rs.43, but the market survey unearthed that at the retail level these brands were available at a lower price than the advertised prices, which was Rs.35, Rs.25, Rs.30 and Rs.20 respectively.

The prices of other brands by various local companies including Gold Cup (Rs.33), Melburn (Rs.35), Press (Rs.35) and Cricket (Rs.15) were also checked during the survey and it was found that all the prices were below the legal minimum price.

The excise tax per 1000 sticks in this value category is Rs.1085, which translates into Rs.21.7 excise tax per pack. After adding the sales tax, the minimum tax per pack is Rs.27.95. If the pack is selling for Rs.15 and Rs.20 prices, clearly the price is below the amount of tax required to pay per pack of 20 cigarettes. This shows that the local manufacturers are not paying any taxes.

Such tax evasion causes huge losses to national exchequer, according to the Oxford Economics, a leading global forecasting and quantitative analysis company. They estimate that due to illicit tobacco trade, Pakistan loses tax revenues of over Rs.27 billion per year.

The Euro-monitor also reports the tax losses due to these local brands to be about 17% of Pakistan’s total current account deficit FY 2014. These local brands also undermine the government’s health initiatives as they sell below minimum legal price making it easier for our youth to buy cheaper cigarettes.

The FBR should develop comprehensive strategies to focus on illegal brands to bring them into the tax net particularly when the FBR is unable to meet revenue targets and have the challenging task of increasing the tax base.