BAT Warns Pakistan Government Against Further Tax Increase

According to a report by the Tribune on May 29th, British American Tobacco has warned the Pakistani government that if they further increase cigarette taxes, they will consider divesting from the country. The tax policy has led to a 38% decrease in tobacco sales, with the illicit tobacco market expanding to 58%.

Michael DiNorscio, the regional director for Asia Pacific, Middle East, and Africa at British American Tobacco, has expressed concern about the growth of the illegal cigarette market. He has recently met with the Prime Minister of Pakistan and the National Coordinator of the Special Investment Promotion Committee (SIFC). British American Tobacco has reduced its investments in Pakistan, as the government has established a new Cabinet committee under SIFC. The subsidiary of British American Tobacco, Pakistan Tobacco Company (PTC), is expected to pay 220 billion rupees in taxes in the current fiscal year.

In the past five years, the legitimate tobacco industry has paid nearly 700 billion rupees in taxes to the government. British American Tobacco has established a global business center in Lahore, with plans to expand its operations, but concerns have arisen about the sustainability of the company's business in Pakistan due to fiscal policies. In the previous budget, the government increased tobacco taxes, which did not curb smoking but instead led smokers to turn to illegal brands. Diyanovich stated that if taxes are increased again, the company may withdraw from Pakistan.

PTC senior official Assad Shah said that the taxes collected from the tobacco industry are lower than its total potential. Regional managers reported that federal consumption taxes increased by 73%, while company sales decreased by 38%, resulting in only an 8% increase in government revenue. The share of illegal and untaxed cigarettes rose from 22% to 58%, with an estimated annual sales volume of around 80 billion cigarettes, of which 46 billion were sold without paying taxes.

British and American tobacco officials have stated that if federal excise tax rates increase, factories will stop production and companies may move elsewhere. SIFC acknowledges the challenges faced by the tobacco industry, including the rise in sales of illegal and untaxed cigarettes. The current situation, combined with crackdowns on illegal cigarettes, could provide a foundation for work in Pakistan. A 25% increase in federal excise tax would lead to a 15% decrease in tobacco industry revenue next fiscal year.

Officials from British American Tobacco attending the meeting stated, "If we do not have a sustainable domestic market, then there is no reason for Pakistan to continue exporting to other countries.

PTC has been exporting cigarettes to the global market since 2019, earning the country 1.56 billion US dollars. The next fiscal year's export target is 60 million US dollars, but the Ministry of Health is reluctant to amend the statutory regulations, putting the order in jeopardy.