Pakistan: Tobacco Market

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Pakistan is the world’s fifth-most populous country with a 240Mn population. With an average age of 21 years and 2% annual population growth, Pakistan is an important growth market for the tobacco majors. However, in H1 2023 earnings release, BAT underlined significant excise increases in Pakistan as one of the main drivers of Group’s global cigarette volume decline (5.8% year-on-year basis).

Pakistan Tobacco Company (PTC), a subsidiary of BAT, estimates that the share of illicit cigarettes will reach 51.4Bn sticks (i.e. 63% of the 81Bn sticks consumed in total) in Pakistan in the current fiscal year1. Since the increase of Federal Excise Duty (FED) on cigarettes by more than 200% in FY22/23 (including an an unprecedented 150% excise hike in Feb 2023), consumers are increasingly downtrading to tax-evaded (locally manufactured) and smuggled cigarettes. The minimum tax (FED & Sales Tax) is PKR127.4/pack ($0.455/pack), but non-tax-paid cigarettes are reportedly being sold at an average price of PKR100/pack – resulting in a price gap of 200% compared to most tax-paid brands.

PTC stated that

– volumes of the tax-paid cigarettes have reduced by more than 55% in the half of 2023, raising concerns of business sustainability for major tobacco companies

– for the first time in Pakistan’s history, tax loss due to the illicit trade will surpass the total tax paid in FY23/24.

In the first nine months of 2023, Philip Morris Pakistan Limited (PMPL) reported -24% revenue and -44% volume decline2. PMPL estimates that tax-paid volumes have decreased by -38% in the same period and by -55% between March and June 2023 (- note the difference versus the PTC estimates).

References:

  1. Tobacco industry: ‘Illicit sector outgrowing legitimate sector’ (thenews.com.pk) ↩︎
  2. Philip Morris Pakistan announces financial results for 3rd quarter (nation.com.pk) ↩︎

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