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Tobacco business to become infeasible if higher FED interest rates continue: LUMS report

02:46 PM | 5 Jun, 2024
Tobacco business to become infeasible if higher FED interest rates continue: LUMS report

ISLAMABAD—A recent study by the Lahore University of Management Sciences (LUMS), 'Impact of Taxation on the Cigarette Sector in Pakistan,' has revealed a significant issue that requires urgent attention.

The study focuses on the impact of tax policies, particularly Federal Excise Duty (FED) adjustments, on Pakistan's cigarette industry, causing the government to lose more revenue than it gains.

The study, led by Kashif Zaheer Malik, an experienced Associate Professor of Economics at LUMS, uncovers the profound effect of frequent and substantial increases in FED on the cigarette industry.

The report emphasizes the need for a balanced and effective tax policy that addresses tax evasion challenges and supports a level playing field for all manufacturers. It highlights the importance of comprehensive enforcement, broader tax base expansion, and public awareness to mitigate the detrimental effects of illicit trade on Pakistan's economy.

The report also presents a detailed assessment of the revenue losses caused by the trend of shifts from legitimate to illicit cigarette consumption following tax increases. According to the report, a primary survey revealed that approximately 42% of sales are DP brands, while 58% comprise illicit brands, including locally manufactured tax-evaded and smuggled products. This translates to a potential tax evasion of PKR 300 billion, posing a substantial challenge to tax enforcement.

Furthermore, the research indicates that increased excise rates over the past two years have primarily affected legitimate companies, causing a decline in their volumes. Illicit cigarettes continue to sell in the market due to their lower prices and uninterrupted availability, facilitated by the government's lax enforcement.

According to Malik, the government's initiatives to address the extent of the illicit sector and bring more companies and the illicit sector under the tax net have not been successful. The report suggests that the success of the Track and Trace System relies on a genuine, comprehensive rollout across every industry, backed by a unified and consistent enforcement campaign. Malik added that this comprehensive approach, along with the government's focus on expanding the tax base, could potentially reduce the prevalence of illicit trade and tax evasion, offering a brighter future for the industry.

In conclusion, the report recommends reevaluating and reconsidering the existing excise tiers based on the significant price sensitivity in the Pakistani market and the widespread availability of illicit brands. This approach often results in the substitution of higher-priced legitimate brands for lower-priced illicit brands, leading to potential lost tax revenues.

Daily Pakistan Global Web Desk

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Today Currency Rates in Pakistan - Rupee to US Dollar, Euro, Pound, Dirham, Riyal - 24 July 2024

Pakistani rupee rates against US Dollar and other currencies on July 24, 2024 (Wednesday) in open market.

USD to PKR Rate Today

US dollar was being quoted at 278.4 for buying and 280.1 for selling. Euro's buying rate remains stable at 301.35 and selling rate is 303.45.

British Pound rate is 354.5 for buying, and 358.35 for selling. UAE Dirham AED was at 76.5 and Saudi Riyal hovered at 73.6.

Currency Rates Today

Currency Symbol Buying Selling
US Dollar USD 278.4  280.1 
Euro EUR 301.35 303.45
UK Pound Sterling GBP 354.5 358.35
U.A.E Dirham AED 76.5  77.25
Saudi Riyal SAR 73.60 74.32
Australian Dollar AUD 184.75 186.55
Bahrain Dinar BHD 741.15 749.15
Canadian Dollar CAD 203.50 205.50
China Yuan CNY 38.35 38.75
Danish Krone DKK 40.05 40.45
Hong Kong Dollar HKD 35.70 36.05
Indian Rupee INR 36.05 36.05
Japanese Yen JPY 1.91 1.99
Kuwaiti Dinar KWD 908.25 917.35
Malaysian Ringgit MYR 58.95 59.75
New Zealand Dollar NZD 169.24 171.24
Norwegians Krone NOK 26.04 26.34
Omani Riyal OMR 722.87 730.89
Qatari Riyal QAR 76.39 77.09
Singapore Dollar SGD 202.00 204.00
Swedish Korona SEK 26.40 26.70
Swiss Franc CHF 309.05 311.55
Thai Bhat THB 7.50 7.65

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