LAHORE: Tax experts have urged the Federal Board of Revenue (FBR) for an early initiation of investigation into allegations surrounding potential smuggling of cigarettes by multinational companies, in addition to their legally imported consignments.
According to data from the Pakistan Bureau of Statistics, approximately 15,907 metric tonnes of tobacco and tobacco products, including a small quantity of cigarettes, were imported into Pakistan during FY 2020-2021 period.
However, it is important to note that not all foreign cigarettes sold in Pakistan are explicitly labeled as imported, which creates confusion for regulators. Despite health regulations, it is challenging to differentiate between an imported cigarette pack and a domestically produced one.
Multinational cigarette brands that are smuggled into the country do not feature Urdu health warnings or approved pictorial warnings. The government of Pakistan has been actively combatting smuggling activities and promoting legitimate imports to bolster the local economy.
However, stricter monitoring is needed along the Afghan border to tackle the smuggling of international brands. This situation raises concerns about whether certain international tobacco companies are engaging in unethical practices, deceiving Pakistani consumers by packaging smuggled products as imported and selling them at inflated prices.
For instance, a pack of 20 cigarettes, marketed as imported, is priced at Rs800, while the same product manufactured in Pakistan is sold for Rs500. Consumers argue that they assume the higher price is justified because it is an imported cigarette, assuming that taxes and import duties have been paid.
However, they assert that there is no discernible difference in quality between Pakistani-made and imported cigarettes. Economist Dr Rashid explains that a locally-produced pack incurs Rs390 in taxes per unit, which is then sold to consumers for Rs500.
However, by labeling a smuggled product as imported, companies can easily charge Rs800 without contributing anything to the government in terms of taxes. Dr Rashid emphasises that this extra amount paid by consumers does not provide any additional value.
He further notes that the main distinction lies in the freshness of the tobacco, as Pakistani cigarettes tend to be fresher compared to smuggled ones.
According to Dr Rashid, there exists a niche market for these smuggled products, despite their higher prices. He suggests that even if Pakistani taxes were increased to Rs500 or more, customers would still opt for Pakistani-manufactured cigarettes priced at Rs800.
This highlights the discrepancy between the high taxes complained about by multinational companies and the consumer preferences for locally-produced cigarettes.
