LAHORE - If the proposed changes in cigarette excise are executed by the FBR, thousands of tobacco farmers will go out of job in already suffering KPK regions, industry representatives claimed.

They said that cigarette industry buys nearly 70/80 million kg of green crops from tobacco farmers every year, generating income of Rs13 billion for those farmers. Those farmers have already sowed their crops for 2013 season. Pakistan Tobacco Board has already announced the minimum price to be paid to farmers.

If the FBR proposal goes through the tax-paying cigarette manufactures would not be able to or need to buy the crop already sowed by the farmers in the field. The farmers who sowed crop will be left high and dry as demand for their crop will decline drastically.

The reason is simple. As a result of drastic tax increase, the price of duty paid cigarettes is expected to increase. The minimum price of a duty paid cigarette will go upto Rs. 50. This will obviously negatively impact cigarette demand. With reduced demand, the manufactures will be needing much smaller quantities of crop. As a result the tobacco farmers will not be able to sell their crops.

Revenue from cigarette sector is going to decline and not increase due to the proposed changes. The detailed analysis required to understand the elasticises of demand in different segments, the different excise regimes and tiers in different countries and implications of different options has not been thoroughly worked out. The current FBR proposal, presenting a two-tier excise structure, with staggering tax hike within the lower tier catering to bulk of the existing industry volume, is likely to create a serious dent in the demand of such brands, while promoting purchase of cheaper alternatives like Pine and other smuggled and non-duty paid brands.