Pakistan’s tobacco industry has been one of the most profitable industries for attracting second highest foreign direct investment (FDI) in the country for many years. But the fiscal year 2016-17 gives a slightly different picture of the tobacco industry’s current status, as cigarette production dropped by 35% during the year with only 34 billion cigarette sticks being produced during 2016-2017, as compared to the last year’s production of 53 billion sticks.
The 2016-17 production was even lesser than the production in the year 2002-03 where only 49.37 billion cigarette sticks were produced. While production of cigarettes decreased as compared to last year’s, prices of cigarettes also went down by 16% on year-over-year basis. The decrease in prices of cigarettes was due to changes in the duty fees imposed by the government.
The reported decrease in the production of cigarettes can be owed to the popularity of smuggled cigarettes in the market. Retailers are now selling smuggled cigarettes from China, South Korea, Iran, and other countries, taking away a significant portion of cigarette sale by local brands. These smuggled cigarettes are available at a lower price and are fast gaining popularity amongst smokers in the country.
Smuggling of cigarette is causing a revenue loss of approximately Rs. 3 billion per year to the industry as high taxes have been imposed by the government. Pakistani smokers are the third highest tax payers in the world as 78% of premium brands and 58% of low segment brands retail price goes towards taxation. Denmark and UK top the list with 85% and 82% respectively.
Due to increase in taxes, prices of cigarettes have also gone up. Back in 2005-06, Pakistani’s consumed about Rs. 200 billion worth of cigarettes. But now in 2016-17, despite the reduction in production, consumption is still around Rs. 200 billion with an average price of Rs. 6 per cigarette.