Philip Morris (Pakistan) Limited (the Company) announced its financial results for the quarter ended March 31, 2023. During the quarter, the Company reported a Total Net Turnover of PKR 5,822 million reflecting an increase of 8.9% vs. the same period last year (SPLY) driven by tobacco exports of PKR 2,365 million, (US$ 9.7 million), reflecting an increase of more than 100% due to delay in exports from last quarter of 2022. While the Company’s domestic Net Turnover of PKR 3,456 million reflects a significant decrease of 23.1% vs. SPLY driven by the massive decline in volumes by 44% vs. Q1’22 due to an excise hike in Feb’23. The Company recorded a profit after tax of PKR 379 million for the quarter ended Mar 31, 2023, reflecting a huge decrease of 67.0% vs. SPLY driven by the impact of the decline in volumes as mentioned above. During the quarter ended Mar 31, 2023, the Company’s contribution to the National Exchequer in the form of excise duty, sales tax, and other Government levies, stood at PKR 5,990 million with a decrease of 16.4% vs. the prior period reflecting the impact of volume decline driven by Feb’23 excise driven price increase.
The Track & Trace System (“the System”) was rolled out with a view to enhance tax revenue, reduce counterfeiting, and prevent the smuggling of illicit non-tax-paid goods through the implementation of robust, nationwide electronic monitoring. However, to date, Philip Morris (Pakistan) Limited (the Company) and two other companies have fully implemented the System whereas, the remaining tobacco manufacturers are still operating without the implementation of the System. The System could only be effective with its across-the-board implementation and robust monitoring. Without effective monitoring, the annual estimated loss of more than PKR 80 billion to the National Exchequer caused by the illicit non-tax paid sector is expected to further increase.
In addition to the targeted revenue of PKR 200 billion in taxes from the tobacco industry announced by the Government through the mini budget in Aug’22, another supplemental budget was announced in Feb’23 with a further increase in revenue from the tobacco industry over and above the Aug’22 target. With the supplemental FED increase in cigarettes by 150%, the cumulative increase in FED in the current fiscal year stands at more than 200%. The minimum price prescribed under the tax laws for the levy and collection of FED and Sales Tax has also now been increased from PKR 70.1 to PKR 127.4 per pack. However, according to the latest market observation, illicit non-tax-paid cigarettes are being sold at an average price of PKR 100 per pack which is significantly below the legal minimum price as mentioned above. This unexpected and unprecedented increase in excise is likely to provide an opportunity for illicit non-tax-paying tobacco manufacturers to expand their businesses and grow further at the expense of the compliant tax-paid tobacco industry. This will likely result in a shortfall of the revenue targets set by the Government from the tobacco industry.
“At Philip Morris Pakistan, we believe that a robust collaboration between tax-paid industry and the Government is critical to address the issue of the non-tax-paid (illicit) tobacco trade,” said Mr. Roman Yazbeck Managing Director of Philip Morris Pakistan. “We urge the Government to ensure across-the-board implementation of the Track & Trace System for the tobacco industry and take immediate and effective enforcement action against the non-tax-paid illicit tobacco sector as it will help the Government to achieve its revenue targets and will also provide an even level playing field to the compliant tax paid tobacco sector. The excessive increase in FED is likely to lead to shortfalls in Government revenue as more adult smokers may shift from the tax-paid sector to the non-tax-paid sector. We remain committed to contributing to the growth of the national economy and are eager to continue collaborating with the Government on this important issue.”