ISLAMABAD - The overall volumes and sales of two documented cigarette manufacturing companies showed decline during 2015-16 due to increase in illicit trade, ultimately reducing their revenues.

Latest industry data revealed that both the documented manufacturers - PMI PTC - are facing serious issues following increase in the illicit trade and smuggling of cigarettes. It ultimately resulted in decrease in revenues of leading manufacturing units.

The said concerns have been communicated by the two manufacturers to the Federal Board of Revenue (FBR) during ongoing budget exercise for 2016-17. Meanwhile a, new report (a review of cigarette taxation in Pakistan) has been prepared by KPMG LLP (‘KPMG’) solely for British American Tobacco (Investments) Limited (‘BAT’) in accordance with terms of engagement agreed by BAT with KPMG.

The leading research company (KPMG) revealed that the total taxes on the weighted average price cigarette increased between 2011 and December 2015 by Rs.15 in real terms (i.e. inflation adjusted) per pack of 20 cigarettes. Over the same period, the pre tax price of cigarettes (i.e. the price excluding all duties and sales tax) increased by a smaller amount, by Rs.10 per pack of 20 cigarettes in real terms.

 As a result, the average pack price increased from Rs.43 to Rs.68, in real terms, with taxes responsible for 62% of the retail price increase. Over the same period, the average household’s income fell by 1%, in real terms. The combination of a decline in household income and rising duty paid cigarette prices made cigarettes 59% more expensive, relative to incomes, for consumers in December 2015 compared to 2011. The increase in the price of duty paid cigarettes contributed to a widening price differential between VFM segment duty paid and illicit cigarettes from Rs.11 to Rs.28 per pack between the 2010/11 and 2015/16 fiscal periods.

It said that between 2011 and 2015, duty paid cigarette sales volumes fell by 6% as duty paid cigarettes became less affordable for consumers. The higher price of duty paid cigarettes relative to average household incomes increased the incentive for consumers to look for lower priced alternatives.