British American Tobacco Threatens To Withdraw From Pakistan Market Due To High Tax Increase

British American Tobacco threatens to withdraw from Pakistan market due to high tax increase

British American Tobacco warned the Pakistani government that it would consider divesting if cigarette taxes were further increased. Tax policies have led to a 38% drop in tobacco sales and an expansion of the illegal tobacco market to 58%.

According to a tribune report on May 29, British American Tobacco warned the Pakistani government that it would consider divesting if cigarette taxes were further increased. Tax policies have led to a 38% drop in tobacco sales and an expansion of the illegal tobacco market to 58%.

Michael Dianosik, regional director for Asia Pacific, the Middle East and Africa at British American Tobacco, expressed concern about the growth of the illegal cigarette market and had met with the Prime Minister of Pakistan and the national coordinator of the Special Investment Promotion Committee (SIFC). British American Tobacco's investment in Pakistan has decreased, the government has established a new cabinet committee on SIFC, and British American Tobacco's subsidiary Pakistan Tobacco Company (PTC) expects to pay 220 billion rupees in taxes this fiscal year.

In the past five years, the formal tobacco industry has paid nearly 700 billion rupees in taxes to the government. British American Tobacco has established a global business center in Lahore and plans to expand its business, but its fiscal policy has raised questions about the sustainability of the company's business in Pakistan. In the last budget, the government raised tobacco taxes, which did not curb smoking but instead turned smokers to illegal brands. Dianocic said that if the tax increase is repeated, the company may withdraw from Pakistan.

PTC senior official Asad Shah said that the tobacco industry collects less tax than the total potential. The regional director said that the federal excise tax increased by 73%, the company's sales fell by 38%, and the government's revenue actually increased by only 8%. The share of illegal and untaxed cigarettes increased from 22% to 58%, with an estimated annual sales of about 80 billion sticks and 46 billion sold without paying taxes.

British American Tobacco officials said that if the federal excise tax rate increases, factories will be suspended and the company may move elsewhere. SIFC acknowledged the problems facing the tobacco industry, including the increase in illegal and untaxed cigarette sales. The current situation plus the crackdown on illegal cigarettes can provide a basis for work in Pakistan. A 25% increase in federal excise tax will lead to a 15% reduction in tobacco industry revenue in the next fiscal year.

A BAT official who attended the meeting said: "If we don't have a sustainable domestic market, then there is no reason for Pakistan to continue exporting to other countries."

PTC has exported cigarettes to the global market since 2019, earning the country $156 million. The target export value for the next fiscal year is $60 million, but the Ministry of Health is unwilling to amend the statutory regulatory order, and the order is at risk.