Tobacco Industry’s Profit margin increased due to shifting of tax burden on Customers

Islamabad: Imrana Komal

Society for the Protection of the Rights of Child (SPARC) to highlight Tobacco industry’s mischievous ways to earn additional profits from tobacco users. According to the health activists, government should be earning additional revenues from increased tobacco taxation not tobacco industry.

Malik Imran, Country Head Campaign for Tobacco Free Kids, said that tobacco industry’s profit margin increased due to shifting of tax burden on customers. He further added tobacco industry’s ulterior motive is to earn hefty profits from its consumer that’s why the industry has always tried to manipulate the government and tax policies into its favor. Malik Imran said that cigarette production in May is significantly lower than the rest of the months, indicating the industry’s intention to pressure the government from implementing tax increase. Tobacco industry is utilizing every platform to get benefits from its consumers as well as to gain leniency in tax earnings.

The FED shared in retail price continuously declined from 45.7 per cent in 2020-21 to 41.0 per cent in 2022-23 (Aug-Feb). During same period, the producers’ price increased from 41.1 per cent to 44.4 per cent. The overall price increase was 164 per cent and 170 per cent in tier one and tier 2 respectively. Cigarette manufacturers have also kept increasing their net-of-tax price of the economy brand increased by 121 per cent, much higher than the prevailing inflation rate.

Dr. Ziauddin Islam, Former Technical Head, Tobacco Control Cell, Ministry of Health, said that cigarette manufacturers have over-shifted the tax burden to consumers to increase their profitability. Tobacco Industry has used various tactics, such as front-loading and abrupt changes in production, to avoid tax hikes and influence tax policy. Another ploy by tobacco industry is presenting overblown figures of Illicit trade , to pressurize government into withdrawing FED in budget. After a tax increase of over 150 per cent in February 2023, the FED share rose to 51.6 per cent—though it has not increased as much due to tax over-shifting by the cigarette industry and remains lower than the widely-accepted benchmark of 70%. The consumer price increased by PKR 131. Similarly, the price increase of premium brands was more than the tax increase. This way, the cigarette industry has over-shifted the tax increase.

Khalil Ahmed Dogar, Program Manager, SPARC, said that tobacco industry is directly targeting youth’s future and government’s economic wellbeing. He further added that, FBR has started countering illegal cigarette packs successfully by implementing track & trace system on tobacco. To end this tobacco menace, we must understand the underlying facts and truth on tobacco industry’s wrong approach which only focuses on its own profits at the expense of its customers.