IMF Taxes Draw First Blood on Tobacco Sector as Cigarette Prices See 250% Increase

Pakistan’s tobacco sector has taken one on the chin as cigarette makers on Saturday notified huge price hikes of 250 percent per packet in response to the government’s implementation of the Rs. 170 billion mini-budget this week which saw the sales tax rate rise from 17 to 18 percent and a 150 percent increase in the rates of the Federal Excise Duty (FED) on cigarettes. The retail rates of all big cigarette brands including Marlboro, Benson and Hedges, Gold Leaf, Capstan, Gold Flake, John Player, Dunhill, Embassy, and Capstan (Pall Mall version), have gone up with the cheapest retailing at Rs. 211 to the most expensive now on sale for Rs. 522-525 per packet. Marlboro Lights Pakistan now retails for Rs. 500 per pack after the latest rate revision by the manufacturer hiked prices by Rs. 240 per packet. A spokesperson for Philip Morris Pakistan Limited told ProPakistani, Local brands registered with the Pakistan Tobacco Company Limited (PSX: PAKT) are now retailing at much higher rates due to excise-led price increases. A packet of 20 Dunhill Switch cigarettes now costs Rs. 522.3 and retailers are selling it for Rs. 525-530 per pack. Local favorites Dunhill Lights and Gold Leaf now cost Rs. 479 and Rs. 483 per pack, respectively. Embassy, which is a go-to brand for the hard-working labor segment of the country, now costs Rs. 212 per packet. Here is the full list of PAKT rates notified with effect from February 18th, 2023: Finance Minister Ishaq Dar recently tabled the supplementary finance bill in parliament which also enhanced the sales tax on cigarettes. It should be noted that the Federal Board of Revenue (FBR) notified the FED on Tuesday with a 153 percent increase in the price of expensive brands from Rs. 6.5 to Rs. 16.5 per cigarette. For less expensive brands, the per stick increase is roughly 100 percent, from Rs. 2.55 to Rs. 5.1. According to experts, the recent FED hikes are damaging to legitimate companies’ survival because their sales are declining. But one could notice that even though the mini-budget taxes are large and expectedly stingy, the tobacco industry has arguably raised prices above what was required by tax changes. The industry has widened the per-packet price differentials by raising consumer rates significantly above the cost of the tax increase on more expensive products and absorbing the tax impact on cheaper products. Time to quit? Share your thoughts in the comments below.